Motivating factors such as capital and regulatory charges will be the best stimulant for central clearing of the over-the-counter (OTC) derivatives market, according to Rohan Douglas, CEO of Quantifi Solutions.

The issue of centrally clearing OTC derivatives has been raised by authorities on both sides of the Atlantic in recent weeks and is likely to form part of the G20 meetings taking place this month.

Mr Douglas told a press briefing that many current OTC products can be standardised to allow central clearing, and that economic factors may be the best method to encouraging the market to work through central clearing.

However, when asked by Investor Services Journal about the so-called “exotic” instruments that could not be standardised – such as the subprime mortgage-backed securities blamed by many for the credit crunch – Mr Douglas said that these would probably continue to operate “the way they do now”.

Mr Douglas said that the focus should be to ensure that the majority of derivative products should be centrally cleared, rather than imposing a blanket ruling on all instruments. This is a view that has been supported by many investment banks.

“The best suggestion I’ve heard is that the way to encourage people putting trades through a central counterparty is not going to be to specify that this product must go through there,” he said.

“It’s much more sensible to encourage that behaviour economically. Introduce capital charges and regulatory charges that are designed to encourage or motivate the bank to put whatever they can through a central counterparty.”

Mr Douglas also warned of the dangers of only passing a small percentage of OTC products through a central counterparty, or having too many central counterparties in total, both of which can impact the ability to net positions and evaluate risk.