In addition, FMIs will need to address how potential uncovered liquidity shortfalls or credit losses would be allocated, and how the FMI would replenish any financial resources it uses in a stress event so that it can continue to operate in a safe and sound manner. The Principles also introduce a number of new requirements. Some of these address shortcomings that were observed during the crisis. For example, the Principles require CCPs to have segregation and portability arrangements that protect customer positions and collateral. An FMI will also be required to manage the risks it bears from and poses to, not only its participants and their customers, but also to other entities with which it does business such as linked FMIs, settlement banks, custody banks, and liquidity providers. Furthermore, the Principles will require FMIs to establish a dedicated financial cushion that could absorb unanticipated general business losses. This is to ensure that an FMI can continue to provide its critical services. The Principles also require that FMIs have plans for their recapitalization or orderly wind down, if that were to prove to be necessary. Finally, the coverage of the international standards has been expanded to trade repositories as a new category of FMI, to further complement the G-20 OTC derivatives initiative for mandatory trade reporting. The Principles that address trade repositories focus on their transparency and the disclosure of market data. This reflects the important and unique role they will play in disseminating information both to regulators and to the market more broadly.
Transparency into counterparty risk should be greatly improved via disclosure requirements and the ability to aggregate trade information in trade repositories, and end user trading positions should be much better protected by segregation and portability requirements and a more robust financial market infrastructure. Although there is still much to do as part of this process, I’m optimistic that we are on the right road. We just need to continue to push ahead and not forget the lessons learned from the financial crisis. Thank you for your kind attention. I would be happy to take a few questions. BIS central bankers’ speeches  7