market

IOSCO Principles

Compliance and regulatory standards for investor awareness.

Legal Basis

An FMI should have a clear and enforceable legal framework in all relevant jurisdictions, ensuring that all aspects of its activities are well-founded, transparent, and legally supported.

Governance

Governance structures should promote safety, efficiency, and stability within the FMI. These arrangements must be transparent and designed to meet the broader interests of the financial system, stakeholders, and the public.

Risk Management Framework

An FMI must have a comprehensive framework for identifying, assessing, and managing various risks, including legal, credit, liquidity, operational, and systemic risks.

Credit Risk

FMIs should actively monitor and manage credit exposures to participants and to the settlement process, ensuring adequate financial resources to cover credit exposures with a high level of confidence.

Collateral

When collateral is required, it should be of high quality (low credit, liquidity, and market risks), with strict haircuts and concentration limits to mitigate risk.

Margin (for Central Counterparties, CCPs)

A CCP must use an effective margin system to cover its credit exposure to participants. This system should be regularly reviewed and based on risk.

Liquidity Risk

FMIs must have adequate liquidity management systems in place, ensuring sufficient liquid resources to settle obligations, even during extreme stress scenarios.

Money Settlements

Money settlements should be conducted in central bank money where possible. If not, FMIs must manage credit and liquidity risks associated with commercial bank money.

Settlement Finality

FMIs should provide clear and certain final settlement by the end of the value date, ensuring that settlement occurs without dispute. Real-time or intraday settlement may also be required

Physical Deliveries

FMIs involved in physical deliveries must clearly state their obligations and effectively manage the risks tied to the delivery of physical instruments or commodities.

Central Securities Depositories (CSDs)

CSDs must have robust rules to safeguard the integrity of securities and manage risks in their safekeeping and transfer, ensuring securities are dematerialized or immobilized for efficient book-entry transfer.

Exchange-of-Value Settlement Systems

FMIs handling linked obligations, such as securities or foreign exchange transactions, must eliminate principal risk by linking the settlement of each obligation to the settlement of the other.

Participant Default Rules and Procedures

Clear rules and procedures for managing participant defaults must be in place, enabling the FMI to contain risks and continue meeting its obligations in the event of a default.

Segregation and Portability

CCPs must allow the segregation and portability of participant positions and collateral to manage risks related to participant default.

General Business Risk

FMIs should identify and manage general business risks, ensuring they have enough liquid assets to cover losses, continue operations, and wind down if necessary.

Custody and Investment Risks

FMIs must protect their own and participants’ assets, investing only in low-risk instruments, and ensuring efficient access to these assets.

Operational Risk

FMIs should identify potential operational risks and implement measures to mitigate them. This includes ensuring systems are secure, reliable, and capable of scaling, as well as having strong business continuity plans.

Access and Participation Requirements

FMIs must have clear, risk-based criteria for participation, promoting fair and open access to their services.

Tiered Participation Requirements

FMIs must identify and manage risks from tiered participation arrangements, ensuring that indirect participants do not pose risks to the FMI.

FMI Links

When an FMI establishes links with other FMIs, it should monitor and manage the risks associated with those links.

Efficiency and Effectiveness

FMIs must be efficient and effective in meeting the needs of their participants and markets, balancing cost and performance.

Communication Procedures and Standards

FMIs should use internationally recognized communication standards and procedures to facilitate the efficient processing of payments, clearing, settlement, and recording.

Disclosure of Rules, Procedures, and Market Data

FMIs should have clear, publicly available rules and procedures, allowing participants to understand the risks, fees, and other costs involved in participation.

Disclosure of Market Data by Trade Repositories

Trade repositories should provide timely and accurate data to authorities and the public as required by law, ensuring transparency and accountability.