Hedge Fund Trade Group Endorses OTC Derivatives Reform

Aug 18 2010 | 8:56am ET

The Alternative Investment Management Association is urging European Union policymakers to push ahead with reforms of over-the-counter derivatives, saying that the benefits will outweigh increased costs.

The global hedge fund organization says it hopes to see EU policymakers implement the objectives on OTC derivatives that were laid down by the G20.

The G20 has stated that all OTC derivative contracts should be reported to trade repositories, while all standardized contracts should be cleared through central counterparties and, where appropriate and practical, traded on an exchange or electronic trading platform.

In its submission to the European Commission, AIMA states that hedge fund managers—heavy users of OTC derivatives—would have to bear significant costs associated with administrative and operational changes the reforms would require. However, the organization believes that in the long run, hedge funds would actually benefit.

“This is one of the central pieces of the reform agenda leading to the reduction of systemic risk. If designed properly, all market participants will benefit," said Andrew Baker, CEO of AIMA. "Moreover, the whole economy will benefit if the incidence and the impact of future market and financial instability is reduced. This is an important objective we all share.”

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