Speculative activity is a major source of vulnerability not only for the financial market but also to the real economy, which if left unattended, could lead to devastating financial crises. Arguments expounding that these activities provide liquidity are delusional, and at best deflective. 2. Secondly, the outcome of the Principles is to level the playing field among market players. This means a market that cannot be distorted by any institution or individual. All participants, either large or small will have fair access to the market, without fear of being subjected to market collusion and manipulation. It ought to create an efficient, competitive and transparent market that will contribute to economic prosperity. 3. Thirdly, the outcome of the Principles is a strengthened regulatory framework. The Principles of transparency, accountability and good governance will promote market discipline. The Principles will serve as guidepost for us to effectively supervise and regulate the market and is necessary, given the increasing complexity of the financial market, exacerbated by the disruptions arising from technological innovations and greater interconnectedness. Achieving these three outcomes is central to our development strategy and policies for the financial market. Together with the various FMC measures and initiatives already announced, we have laid the foundations to redirect the growth and development of the ringgit foreign financial market from the offshore to the onshore market. After all, a thriving, open and robust onshore financial market is a prerequisite for a stable financial system and sustainable economic growth.
As part of the FSB-led and co-ordinated effort, the central bank Committee on Payment and Settlement Systems and IOSCO are beginning to work on this area of resolution. They must make a clear distinction between measures to procure, on the one hand, Recovery from distress and, on the other hand, Resolution. Orderly resolution is what is needed when a CCP is bankrupt, when we all need somehow to avoid the chaos that follows a standard liquidation of assets and closing out of positions. The issue, always, is where do the losses go? The answer cannot be the taxpayer. In the banking sphere, the answer, broadly, is bond holders and other unsecured, uninsured creditors. In the CCP sphere, it is probably the clearing members, as they would be the principal creditors in an insolvent liquidation. The technical issue is how to achieve that in a way that minimises disruption and value destruction and enables essential CCP services to be maintained. This is a key agenda item going forward. It will involve achieving greater clarity in the related area of the optimal “waterfall” of margin, default fund and CCP owncapital resources in absorbing losses. 4. Margin requirements and macroprudential policy  Earlier this year, US Treasury Secretary Geithner called for the world’s major financial authorities to agree minimum initial margin requirements for uncleared OTC derivative contracts, on the grounds that we must avoid a race to the bottom and incentives that make it attractive to clear bilaterally rather than via a CCP. I agree.