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 Financial Market Policy

Reports

Policy Objectives for the Over-the-Counter (OTC) Market
Statement of the President's Working Group on Financial Markets, November 2008. This statement established policy objectives for the OTC derivatives market, with a primary focus on credit default swaps, in order to: improve market transparency and integrity for Credit Default Swaps; enhance risk management of OTC derivatives; strengthen OTC derivatives market infrastructure; and continue cooperation among regulatory authorities.

Progress Summary on OTC Derivatives Operational Improvements
Summary of the President's Working Group on Financial Markets, November 2008. In 2005, regulators embarked on a collective effort to improve participants’ management of their OTC derivatives operations, since the existing infrastructure was not sufficiently scalable to support the rapid growth of the market. To address these issues, major credit derivatives dealers focused on improvements in automation and on developing and standardizing legal documentation in order to make more products eligible for electronic processing. This summary lists the accomplishments from 2005-2008.

Memorandum of Understanding
Memorandum of Understanding between the Federal Reserve Board, Securities and Exchange Commission, and Commodity Futures Trading Commission regarding central counterparties for credit default swaps, November 2008. This MOU reflected the parties’ intent to cooperate, coordinate, and share information in carrying out their respective responsibilities and exercising their respective authorities with regard to Central Counterparties (CCPs) for credit default swaps.

Progress Update on March Policy Statement on Financial Market Developments
Update of the President's Working Group on Financial Markets, October 2008. This update to the PWG’s March 2008 policy statement found that market participants and supervisory authorities had taken substantial steps toward implementing the PWG’s recommendations, that much progress had been made, and that these efforts were works-in-progress. It concluded that implementation of the PWG’s recommendations needed to continue in order to address weaknesses in global financial markets, institutions, and regulatory policies, consistent with the broader goals of mitigating systemic risk, helping to restore investor confidence, and facilitating economic growth.

Policy Statement on Financial Market Developments
Statement of the President's Working Group on Financial Markets, March 2008. This statement reviewed the causes of the market turmoil: a breakdown in underwriting standards for subprime mortgages; a significant erosion of market discipline; flaws in credit rating agencies’ assessments; risk management weaknesses; and regulatory policies that failed to mitigate risk management weaknesses. This statement also made recommendations to: reform the mortgage origination process; enhance disclosure and improve practices; reform the credit rating agencies’ processes; ensure that global financial institutions take appropriate steps to address the weaknesses in risk management; and ensure that prudential regulatory policies provide strong incentives for effective risk management practices.

Agreement Among PWG and U.S. Agency Principals on Principles and Guidelines Regarding Private Pools of Capital
Agreement among the PWG and agency principals, February 2007. The President's Working Group on Financial Markets set forth fundamental principles and guidelines regarding investor protection and systemic risk with respect to private pools of capital. In response to the PWG’s Principles and Guidelines Regarding Private Pools of Capital (February 2007), two private-sector groups released:

Enhancing Disclosure in the Mortgage-Backed Securities Markets
Report of the Staff Task Force (Department of the Treasury, Office of Federal Housing Enterprise Oversight, and Securities and Exchange Commission), January 2003. The purpose of the report was to evaluate government

-sponsored enterprises' current disclosure practices in mortgage-backed securities and to consider whether disclosure enhancements would be desirable in assisting investors to make informed investment decisions. The report found that additional disclosures in the MBS markets were desirable, feasible and would be useful for investors. To implement additional disclosures, the report encouraged market participants to reach a consensus on appropriate enhancements.

Joint Report on Retail Swaps
Report of the President's Working Group on Financial Markets, December 2001. The report addressed the potential uses of swaps by retail customers, whether financial institutions were willing to offer such agreements, and appropriate regulatory structure to address customer protection issues. The report concluded that it was not necessary to recommend legislative action for retail swaps offered to persons other than eligible contract participants.

Hedge Funds, Leverage, and the Lessons of Long-Term Capital Management
Report of the President's Working Group on Financial Markets, April 1999. The report recommended measures to improve transparency, enhance private-sector risk management, develop risk-sensitive capital adequacy, support financial contract netting in bankruptcy, and encourage compliance with international standards for offshore financial centers.

Over-the-Counter Derivatives Markets and the Commodity Exchange Act
Report of the President's Working Group on Financial Markets, November 1999. The report recommended changes to the Commodity Exchange Act to provide legal certainty for over-the-counter derivatives, remove impediments to innovation, reduce systemic risk, and protect customers from unfair practices.

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