July 31, 2008
Summary of OTC Derivatives Commitments
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This document summarizes the commitments to improve management of OTC derivatives
activities that market participants are making to regulators as of July 31, 2008.
Since their collective effort to address weaknesses in the OTC derivatives market began in
2005, major dealers have reduced OTC credit derivatives (CDS) confirmation backlogs by roughly
93% and increased the percentage of trades that are confirmed electronically from 53% to more than
90%. During this time period, CDS trade volumes have risen by more than 200%. On average,
dealers have reduced their respective OTC equity derivatives backlogs by 70% from levels in mid-
2006 and 95% of interdealer trades are now processed on electronic platforms.
The commitments below expand market efforts beyond OTC credit and equity derivatives to
OTC interest rate, commodities and foreign exchange derivatives. They are centered on a near-term
approach of escalating targets for reducing confirmation backlogs and greater use of electronic trade
matching. In parallel, market participants are developing a longer-term strategy for moving OTC
derivatives processing to automated matching on trade date (T+0), an environment that will mirror
performance in mature markets and eliminate material confirmation backlogs.
In addition to these operational improvements, major dealers are undertaking other steps to
improve how they manage risks associated with OTC derivatives activities. These steps include:
• The formation and use of a central counterparty for index CDS trades by December
31, 2008 that will comply with international regulatory standards for robust risk
management,
• Significant reductions in the total value of outstanding CDS trades through more
aggressive use of multilateral trade terminations which will reduce operational risks
and counterparty credit exposures,
• “Hardwiring” an auction-based settlement mechanism into CDS documentation by
December 31,