R Vivekanand, Malini Raman and V Anjana, TCS Financial Solutions
Financial Market Infrastructures (FMI), facilitate the clearing, settlement, tracking of monetary, other financial transactions, providing financial stability and strength to the markets they serve. However, poorly managed FMIs can pose significant concentrated risks to the financial system and can be a source of systemic failure. Some lessons for effective risk management resulting from the financial crisis in 2008 led the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) to review and update the standards for FMIs or the Principles of FMIs (PFMI). All CPSS and IOSCO members are expected to apply these standards to the relevant FMIs in their jurisdictions to the fullest extent possible.
These standards comprise a set of 24 principles that are targeted for FMIs, including CSDs, CCPs, Payment and Securities Settlement Systems. The revised standards incorporate additional guidance for over-the-counter (OTC) derivatives CCPs and Trade Repositories (TRs). They also incorporate a specific minimum requirement in the credit, liquidity, and general business risk areas to ensure a base level of risk management across organizations. The regulation covers jurisdictions such as Argentina, Australia, Belgium, Brazil Canada, Chile, China, European Union, France, Germany, Hong Kong SAR,
Indonesia, India, Italy, Japan, Korea, Mexico, Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom and United States.
The objective of this paper is to discuss the key tenets of the IOSCO PFMI principles and the strategies that can be adopted by Market infrastructure organizations, including CSDs and CCPs to adhere to these principles, thereby creating more robust financial markets.
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