The International Organization of Securities Commissions (Iosco) has proposed nine standards aimed at mitigating the risks in non-centrally cleared OTC derivatives markets, in its new consultation report Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives.

The proposed risk mitigation standards are expected to bring about three main benefits: promoting legal certainty and facilitating timely dispute resolution; facilitating the management of counterparty credit and other risks; and increasing overall financial stability.

Iosco states that all financial entities and systemically important non-financial entities that engage in non-centrally cleared OTC derivatives should employ all of the risk mitigation techniques it sets out in the report.

The risk mitigation techniques cover policies regarding trading relationship documentation, trade confirmation, valuation with counterparties, reconciliation, portfolio compression, dispute resolution, implementation and cross-border transactions.

The proposed risk mitigation standards would contribute to the G20 effort to strengthen the OTC derivatives market in the wake of the global financial crisis. The proposed standards are aimed at those non-centrally cleared OTC derivatives that are not suitable for being traded through central counterparties.