The new SWIFT Institute aims to bring together academia and the financial industry. In the first ever Sibos Colloquium we will hear Manmohan Singh, Senior Economist at the International Monetary Fund, discuss his working paper, Making OTC Derivatives Safe – A Fresh Look. Recent regulatory efforts, especially in the U.S. and Europe, are aimed at reducing moral hazard so that the next financial crisis is not bailed out by tax payers. Mr. Singh’s paper looks at the possibility that central counterparties (CCPs) may be too-big-to-fail entities in the making. The present regulatory and reform efforts may not remove the systemic risk from OTC derivatives but rather shift them from banks to CCPs. Under the present regulatory overhaul, the OTC derivative market could become more fragmented. Furthermore, another taxpayer bailout cannot be ruled out. A re-examination of the two key issues of (i) the interoperability of CCPs, and (ii) the cost of moving to CCPs with access to central bank funding, indicates that the proposed changes may not provide the best solution. The paper suggests that a tax on derivative liabilities could make the OTC derivatives market safer, particularly in the transition to a stable clearing infrastructure. It also suggests reconsideration of a “public utility” model for the OTC market infrastructure. In this Colloquium session we will also hear Godfried De Vidts, Director of European Affairs at ICAP plc, give his response to Mr. Singh’s paper. The discussion will also be opened up to the wider audience to participate in.  You can download Mr. Singh’s paper here: http://www.imf.org/external/pubs/ft/wp/2011/wp1166.pdf

Godfried De Vidts, Director of European Affairs, ICAP plc
Manmohan Singh, Senior Economist, IMF (International Monetary Fund)