WASHINGTON - The financial services industry can keep federal regulators from intervening more heavily in the derivatives and over-the- counter market by adopting proposed "best practices" guidelines, a New York Fed official said Wednesday.
"If you can't take care of your marketplace, then you'll get what you deserve," the official, General Counsel Ernest Patrikis, told attendees at the International Swaps and Derivatives Association conference here.
Mr. Patrikis said a group representing industry trade associations has been meeting at the New York Fed since December to draft the voluntary guidelines. He said the group will meet shortly to finalize the draft, before submitting it to other associations for their input.
"If nobody likes it, then we will have gotten it right," Mr. Patrikis said during a press briefing.
A Jan. 17 draft of the guidelines states that buyers and sellers must ensure that the other party is legally authorized to conduct the transaction. And, they said, both must determine that their counterparties understand the terms and conditions of the deal.
One guideline requires a buyer or seller to reject a deal if he believes the other party isn't capable of managing the transaction.
The guidelines also state that parties should not rely on each other for investment advice, and they suggest that participants avoid misunderstandings by exchanging written interpretations of the deal.
Many of the guidelines in the draft provide common sense advice. For example, one section says parties must deal in "good faith," and another section says institutions should maintain adequate internal controls and risk management functions. Finally, the guidelines state that brokers and traders should use clear language.
Joseph P. Bauman, a senior vice president at Bank of America and a member of the trade group's board, said the guidelines show the industry's interest in safe and fair practices.
"The guidelines are being put together by a group that by the end of the day will sign on," Mr. Bauman predicted.
Public Securities Association president Heather Ruth said in a prepared statement that the guidelines articulate a key principle.
"Both sides to a transaction have the responsibility to understand the transaction before entering into it," Ms. Ruth said.
The guidelines also will clarify each party's responsibilities for a deal, Gerard J. Quinn, vice president and associate general counsel of the Securities Industry Association, said in a prepared statement.
"In order to ensure the document remains quickly adaptable to changing industry conditions, SIA opposes any effort to undermine its intent by treating it as law or regulation," he said.
Other organizations represented in the group, which has worked on the guidelines since December, are the Emerging Markets Traders Association and the New York Clearing House Association.
The New York Fed is organizing the meetings, but is not participating directly.
