This makes these products pose no major problems

The Bank of International Settlements (bis), the Bank of central banks, firmly takes position for the creation of centralized agencies to compensate for financial products negotiated OTC derivatives. In the last delivery of its quarterly journal, the financial institution from Basel considers that the formation of strong counterparties structures is to reduce the risks associated with these bilateral negotiations to high risk and increase transparency.

The challenge is huge and the dangers are in the endorsement. The cumulative notional value of markets by mutual agreement at the end of the second half of 2008 amounted to about 600,000 billion after having peaked at 700,000 billion approximately six months earlier. The vast majority of these products is represented by rate derivatives. Despite the decline of the notional value of the OTC contracts, explain Stephen Cecchetti, Jacob Gyntelberg and Marc Hollanders, the three authors of the study, the gross value of the range of derivatives market jumped by two-thirds to 35,000 billion end of December 2008. At the time, raw exposures (of credit) have also singed by 30, reaching 5,000 billion. Among the main consequences of the crisis, market-makers - the major negotiators - have added their commissions while reducing their positions on products by mutual agreement. Meanwhile, the managers of the banks and regulators pushed for that more capital to be immobilized in exchange risks. Which made it more expensive to negotiate such contracts.

These changes have changed the configuration of this market. First of all, exchanged bilaterally, OTC derivatives directly compensated on the same basis or a collateral. These products are in principle the most dangerous. The collateral mobilized collateral exceeded the 4,000 billion end of December, including 85 approximately in cash. Not covered by a collateral exhibition was at the same time of 1,000 billion at a minimum, digit bis. The second segment is treated in a decentralized manner, but offset contracts via centralized structures. The rise of this compartment is particularly visible in the new CDS (credit default swaps"), who saw their gross notional exposure reduce to approximately 90 per cent through multilateral compensation. The process of transformation of purely bilateral exchanges in trade guaranteed by a third party approved for that purpose is judged very positively by the bis. "A critical feature of centralized compensation is that it pools the credit and market risk", summarizes the experts of the international institution. Final part of the derivatives by mutual agreement, negotiated on scholarships and compensated accordingly. This makes these products pose no major problems.

New risks

High pressure regulators and Governments for more protection on OTC markets has led to the establishment of new clearing houses dedicated to these derivatives. However, alert the bis, these new structures could lead to new risks, if they were not strong enough to defects in the consideration set of participants. To strengthen them and make them ready for this extreme event, two solutions are advanced: coordination and effective international regulation of the many existing structures or which will emerge soon and the possibility that they would be appeal to public money in a systemic crisis.