mitigated by the ccp need to be considered by regulators. 22. the essence of a ccp arrangement is netting and margining, which are contingent on homogeneity of the underlying asset, availability of reliable prices and sound risk models to capture future potential exposures. the ability of models to capture tail risks has been comprehensively put to question post crisis. how would the exchanges be better able to measure and manage risk where some of the biggest financial firms with the soundest risk management systems failed? this would be particularly true of credit products such as cds. in this context, the nature of collateral regime becomes extremely important. any instrument with a credit risk element would inherently not be suitable for a collateral. if these aspects are not addressed by the regulators, mandatory clearing would only result in a potentially riskier system. 23. the real sector i. e. end users are opposing mandatory move to exchanges and clearing platforms on the ground that the crisis was inherently due to complex transactions between financial intermediaries and there should be no increase in cost to the real sector, i. e. genuine end - users, for undertaking derivative trades. 24. currently, a cpss – iosco committee is looking into the existing standards for the systemic entities like the ccp. given the nature of their functions which require incentives for strong risk management and building adequate financial resources in the form of settlement guarantee funds and their systemic importance, it is worthwhile to consider central counterparties as “ public utility ” and not - for profit entities to reduce moral hazard. 25. a key criticism of the proposed reforms has been that it doesn ’ t address the fundamental issue of speculative use of derivatives and excessive financialisation of all products. in fact, by transferring most of otc market onto exchanges, it might be further accentuating it. it is not surprising to hear major global exchanges as well as brokers betting on a manifold increase in the cds market as a result of electronic trading and central clearing. a recent study 7 has found that of the gross cds position of 23 large us banks only around 2 per cent was for hedging the rest was for their dealer activities. though the figures pertain to 2005, they give a fair idea of really how much of the cds market was actually for pure speculation. speculation does play an economic role in increasing market liquidity and price discovery but beyond a point, trading without an underlying interest could only increase systemic risk particularly when the same market prices and volatilities

##reciably reduce longer - term interest rates. 3 the fomc ’ s goal in lowering longer - term interest rates was to help the u. s. economy recover from the recession and stem the disinflationary forces that emerged from it. some have suggested that the slow pace of the economic recovery proves that our unconventional policy tools were ineffective. however, one should recognize that the recovery could have been much slower in the absence of our unconventional tools. indeed, the evidence strongly suggests that forward rate guidance and securities purchases — by substantially lowering borrowing costs for millions of american families and businesses and making overall financial conditions more accommodative — did help spur consumption and business spending, lower the unemployment rate, and stave off disinflationary pressures. 4 other central banks also deployed unconventional policy tools in the years that followed the financial crisis. 5 evidence accumulated from their experience also supports the notion that these tools have helped stimulate economic activity in their countries after their short - term interest rates were lowered to near - zero — and, in some cases, even below zero. 6 meeting the challenge of scaling back accommodation by 2014, the u. s. economy was making notable progress toward the fomc ’ s goals of maximum employment and price stability. the unemployment rate had dropped to 6 percent by midyear — well below its great recession peak of 10 percent — and other measures of labor market conditions were also showing significant improvement. in addition, inflation, as measured by the change in the price index for personal consumption expenditures, had reached about 1 - 3 / 4 percent by mid - 2014 after hovering around 1 percent in the fall of 2013. reflecting that progress, the federal reserve ’ s focus was shifting from providing additional monetary policy accommodation to scaling it back. 7 a key question for the fomc then was how to reduce the degree of accommodation in the context of a vastly expanded federal reserve balance sheet. one possible approach was to start by reducing the federal reserve ’ s securities holdings while short - term interest rates remained at the lower bound. we could allow securities to roll off the federal reserve ’ s balance sheet and even sell securities, thereby putting upward pressure on long - term rates while calibrating the pace and configuration of the reduction in our holdings as warranted by our maximum employment and price stability objectives. eventually, once our securities holdings had shrunk sufficiently, the fomc could start nudging up its short - term interest rate target. one problem of this