or private nature? the first question is : should this international dispute resolution facility be of a public or private nature? full standardisation of the dispute resolution process in the financial markets could only be reached if states would transfer part of their jurisdiction to an international court on the basis of a treaty. at this moment there is no initiative to prepare a treaty like this, nor is there any indication that enough states would be willing to adhere to it. i will therefore focus on the standardization of the judicial process by private initiative. there are four features that an international dispute resolution facility should have from the perspective of stability. swift and final end to disputes first of all, dispute resolution should be quick and final. legal proceedings that last for years can be a burden to legal certainty. that does not only affect the parties to a dispute, but also the market as a whole. the fast resolution of disputes can for example prevent other institutions from engaging in litigation on the same standard contract terms. therefore, a court decision can prevent procedures from being duplicated. although arbitration procedures are not necessarily faster, the procedural rules could be shaped in such a way that parties can be forced to proceed swiftly. between two parties engaged in the arbitration, a decision will normally mean an end to the dispute. an arbitral decision will also be recognised in most states under the new york convention of 1958. a more challenging aspect is the voluntary nature of arbitration. no - one can be brought before the court without consent, implying that other parties cannot easily be joined in the same litigation. responsiveness to party and market expectations second, decisions should meet justified market expectations. disputes on derivative contracts differ from other disputes for the reason that standard contracts are used across many jurisdictions worldwide. parties to a contract may have agreed on its terms without having contemplated the economics or the history behind them. in some respects, the interpretation of such standard terms resembles statutory interpretation. to mitigate the risk of unexpected decisions, an international dispute resolution facility should consist of arbitrators with extensive knowledge of the specific market environment in which the transactions take place. insight in conflict of law issues third, financial markets are global, but their legal frameworks are of a regional or even national nature. this may make it hard to establish which jurisdictions apply in each case. arbitrators would need to have a very good understanding of the conflicts of law this brings about. therefore, it would be desirable to involve arbitrators with different legal backgrounds, depending on the matter

. there are differences though at a more detailed level. in the us there is only a narrow exemption from the clearing obligation for non - financial entities that enter into certain hedging transactions. in the eu the clearing obligation applies to financial counterparties when dealing with other financial counterparties ; non financial counterparties only become subject to the clearing obligation when their positions exceed a certain threshold. nevertheless, an obligation to clear eligible derivatives through ccps can only mitigate part of the risk associated with derivatives. after all, there will always be a need for bespoke contracts that cannot be standardised. by implication, there will be an otc derivative market for tailor made or more complex products. therefore, improvements of risks management systems are desirable, also for institutions outside the banking sector. requirements to register derivatives contracts in central repositories, especially those that are not cleared through central counterparties, will contribute to transparency. also, national authorities will have to cooperate closely and share relevant information in order to assess where systemic risk might be building up. certain capital requirements / basel iii another recent initiative to mitigate counterparty risk in the derivatives markets is a proposal of the basel committee for banking supervision. the basis idea is straightforward : the capital weight for derivatives that are bilaterally cleared will be higher than those for derivatives cleared through ccps. in this way, the additional risk for these trades can – at least – to some extent be taken into account. it also provides an incentive to clear derivatives through ccps. the costs associated with the use of a ccp might be a lesser burden if capital needs to be reserved for bilaterally traded derivatives. in addition, the requirements for banks to use internal models for calculating capital requirements for derivatives will be tightened. this proposal also includes a reconsideration of the zero risk weight for ccps, even when the ccp complies with international standards. ccps will become systemically important, as more and more derivatives will be cleared through ccps. there will be a concentration of risks on ccps. therefore, the basel committee also proposes to increase the capital charge for exposure on ccps [ the current charge for ccps is 0 % ]. the capital charges will be calibrated in such way that the incentive to use ccps will be preserved. the establishment of an international dispute resolution facility that contributes to legal certainty in the otc derivatives markets, fits well in a broad range of initiatives to enhance financial stability. dnb therefore welcomes