IOSCO today published its Final Report on Post Trade Risk Reduction Services: Sound Practices for Consideration.
IOSCO continues to follow the evolution of Post Trade Risk Reduction Services (PTRRS). While PTRRS provide certain clear benefits, such as the reduction of risk and improved efficiency, the offering and increased use of PTRRS may also present challenges for over-the-counter (OTC) market participants. These include risks relating to control and governance around algorithms, fair treatment of participants, data protection, legal certainty, and operational resilience.
The Final Report on Post Trade Risk Reduction Services highlights potential policy considerations and risks associated with using and offering of PTRRS and presents seven sound practices in this area as guidance to IOSCO members and regulated users of PTRRS.
The seven sound practices cover the following areas:
- Transparency, governance, comprehensibility and fairness of the algorithm;
- Operational risk;
- Data integrity and security and regulatory data;
- Legal certainty;
- Considerations of potential counterparty risk by IOSCO members and PTRRS users;
- Market concentration and competition;
- Standardization and predictability of runs and file formats.
The sound practices are designed to improve and complement existing market practices.
The Final Report reflects the results of the public consultation launched on 26 January 2024(6) which received valuable feedback from stakeholders
Kevin Fine, Chair of the IOSCO Committee on Derivatives (Committee 7), said: “The use of PTRRS continue to grow, as market participants try to improve the efficiency in the way they use OTC derivatives. These Good Practices are a set of important tools which will help mitigate the potential risks identified in our analysis.”
