Various prominent members of the financial services industry have contacted the International Swaps and Derivatives Association in an effort to get this organization to change the "master agreement" for these risk management tools.
A letter that was signed by officials including U.S. Federal Deposit Insurance Corporation Chairman Martin Gruenberg and Bank of England Governor Mark Carney implored the ISDA to change this agreement, which governs derivatives trading, according to Reuters.
The document was also signed by Patrick Raaflaub, chief executive of the Swiss Financial Market Supervisory Authority, and Elke Koenig, president of German regulator BaFin, the media outlet reported.
These individuals asked that the industry organization remove all language from its master agreement that would allow market participants to refrain from making good on their side of the bargain if a counterparty failed, BaFin said in a statement, according to Dow Jones Business News.
"If (a counterparty) uses such rights, then positions that an institute had previously hedged via derivatives would suddenly become unhedged," the regulator said in the statement, the media outlet reported.
The letter asked that the ISDA provide a new set of procedures in the event that a major bank fails, according to Reuters. The officials requested that the organization change its master agreement so that if such an incident occurs, traders would have time to move the contracts elsewhere.