G20 to regulate derivatives, hedge funds and bonuses: draft

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The leaders of the G20 economic powers agreed on Friday measures to regulate the "shadow banking sector", hedge funds, derivatives trades and traders' bonuses, according to a draft statement.

In the statement, to be released in its final form at the Cannes summit, the leaders mandate the existing Financial Stability Board and the International Organization of Securities Commissions to take tighter charge.

"We will develop further our regulation on market integrity and efficiency, including addressing the risks posed by high frequency trading and dark liquidity," they say, according to the draft.

The term "dark liquidity" refers to securities traded privately rather than on public exchanges, in a way which avoids influencing the broader market but which is seen as more open to abuse.

"All standardised over-the-counter derivatives contracts should be traded on exchanges or electronic trading platforms, where appropriate, and centrally cleared, by the end of 2012," the statement said.

"We have agreed to reform the FSB to improve its capacity to coordinate and monitor our financial regulation agenda," the statement added, urging the Swiss-based bank regulator to close remaining loopholes in its monitoring.

The FSB is to publish on Friday a list of the "Global Systemic Financial Instititions" which are considered too big to fail and will be subjected to tougher requirements for capital ratios to protect the world economy.

The body is also to monitor and report on bankers' bonuses, which leaders believe encourage risky trading practices and have sought to limit, and to spot "gaps and impediments to full implementation of these standards."

© 2011 AFP

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