The challenges and opportunities presented by OTC derivatives reform prompted BNY Mellon to engage the University of Cambridge Judge Business School to analyze the impact on asset owners and sovereign wealth funds. This report provides recommendations for an evolving environment. Part 2 of 3
The financial crisis of 2007-2009 amplified the importance of risk management in the OTC derivatives market. The major impacts of shortcomings in the OTC derivatives market on the global financial system, as experienced during the crisis, include the following:
More broadly, capital and liquidity levels as well as recovery and resolution regimes for various market participants and market structure operators were found to be inadequate to handle the potential risks posed by such an interconnected financial markets system. Furthermore, the ‘knock-on’ impacts of financial markets reforms have created a need for further rules and guidelines as their initial impacts feed through into the market, leading to new roles and responsibilities for market players. As a result, the international communities of financial regulators and policy makers have developed frameworks to address these issues which continue to evolve during implementation, and differ in detail across jurisdictions. In this section we outline the main regulatory frameworks implemented or being developed in Europe, focused primarily on OTC derivatives but also reflecting other relevant changes to financial market regulation.
Additional topics covered in this section include:
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