New proposals for the regulation of securitization and the credit default swaps (CDS)
market have been published by the International Organization of Securities Organisations (Iosco) task force on unregulated markets and products.

The task force was established in November of last year after the G20 expressed concerns over the role of securitization - the process of creating asset-backed securities - and CDS in the creating the current crisis.

Kathleen Casey, chair of the Iosco technical committee, said it had focused on these particular issues and products because of their rapidly growing role in global markets, their impact on credit availability and their contribution to individual and systemic risk.

“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," she said. "IOSCO further believes that implementing these regulatory actions may assist in restoring confidence in, and promoting the fairness, efficiency and orderliness of, international financial markets."

The task force report calls for originators of ABS to be obliged to retain a "long-term economic exposure" to a securitization and for them to provide initial and ongoing reports on the performance of its underlying asset pool.

In the CDS market, the task force recommended the formation of central counterparties to handle the clearing of CDS contracts and for market participants to support the clearing process by developing a standardized CDS contract. Iosco's proposals will be open to consultation until June 15.

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