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Call for control of derivatives

REGULATORS are threatening to impose tougher rules on an opaque $65 trillion-a-year market if the financial sector fails in its effort to increase transparency.

Authorities have been working to tackle risks from trading in complex products that allow investors to bet on key indicators, such as the direction of currencies or interest rates.

Turnover of ''over-the-counter derivatives'' in Australia, is worth $180 billion a day, dwarfing typical turnover of $2 billion to $5 billion on the benchmark ASX200.

Amid concerns of ''systemic'' risks, global regulators want more of this trading to be done in a more transparent fashion through a central clearing house.

After a big review, the Reserve Bank, the Australian Securities and Investments Commission and Australian Prudential Regulation Authority on Tuesday recommended a more centralised approach, with tougher rules if necessary.

Australian dollar-denominated interest rate derivatives were in most need of being centralised, it said, as this market was used by the major banks to manage their interest rate risk.

While there was no immediate need for a mandatory clearing obligation, the report added: ''Should there be insufficient progress by the Australian market in migrating to central clearing for Australian dollar-denominated interest rate derivatives in particular, regulatory intervention may be necessary.''