Global regulators say securitisation rules needed

Forcing banks to retain a slice of the securities products they design and sell would make markets safer and help restore investor confidence, a top global regulatory body said on Tuesday. The International Organisation of Securities Commissions (IOSCO) also said central clearing of credit default swaps was needed.
"In proposing these interim recommendations IOSCO believes that a measured regulatory response is required, taking into account industry initiatives, to strengthen the operation of the securitisation and CDS markets," said Kathleen Casey, chairwoman of IOSCO's technical committee.
The recommendations are part of an IOSCO report into unregulated markets at the core of the credit crunch. They dovetail with a wider push by the G20 group of industrialised and emerging market countries, which agreed in April that all parts of the financial market should be supervised.
After public consultation, IOSCO will adopt final recommendations that its members are obliged to implement. IOSCO groups national securities watchdogs from over 100 countries, including the United States, the European Union and Japan. On Wednesday, the European Parliament will adopt into law a requirement that banks retain 5 percent of the securities products they originate.
The other main recommendations include:
-- enhance transparency in securitisation through disclosure by issuers of all checks, assessments and duties that have been performed or risk practices that have been undertaken by the underwriter, sponsor and/or originator;
-- improve risk management practices in securitisation;
-- national regulators need to assess whether their powers are adequate to enforce the IOSCO recommendations;
-- central counterparties for credit default swaps would cut risk and improve transparency;
-- financial institutions and market participants should work on standardising CDS contracts to make clearing easier;
-- facilitate appropriate and timely disclosure of CDS data relating to price, volume and open-interest by market participants, electronic trading platforms, data providers and data warehouses.