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IOSCO Shares Feedback on CDS Determinations and Auction Processes

The Board of the International Organization of Securities Commissions ("IOSCO") issued a statement on research conducted by the IOSCO Task Force on OTC Derivatives Regulation ("Task Force") concerning the "functioning" and "potential limitations" of (i) the ISDA Credit Derivatives Determinations Committees ("DCs") and (ii) credit default swap ("CDS") auction processes. In undertaking the review, the Task Force noted recent changes to rules governing conflicts of interest and the appointment of the ICE Benchmark Administration as the DC secretary, which has not yet been finalized.

The Task Force observed that market participant survey respondents did not identify a need for substantial changes to DC policies and procedures, or the management of conflicts of interest. However, the Task Force did receive various suggestions from market participants concerning improved transparency of DC functioning and conflict of interest management. Task Force suggestions included: (i) the increased disclosure of potential conflicts of interest, (ii) the creation of an independent panel to vote on DC decisions, (iii) the clarification of DC governance and conduct rules, (iv) the expanded participation of external observers, and (v) an improved external review process.

Regarding both the CDS auction and DC process, IOSCO stated that feedback largely centered on expanded buy-side participation, clarification of the processes, and increased disclosures to improve transparency. IOSCO said that the two processes could warrant continued consideration and an evaluation to monitor changes.

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