Reforms to the $708 trillion private derivatives market arereducing systemic risk while some rules need more work before beingimplemented, said Stephen O'Connor, chairman of the InternationalSwaps and Derivatives Association.

“There is today serious concern about some of the other policiesunderway” related to the Dodd-Frank Act that toughens oversight ofthe market, O'Conner, Morgan Stanley's global head ofover-the-counter client clearing, said at ISDA's annual meetingtoday in Chicago. He cited differences between new swaps rules inEurope and the U.S., known as extraterritoriality, and mandatedelectronic execution for swaps as issues the industry wants toaddress.

Banks, hedge funds and asset managers active in theover-the-counter derivatives market are adapting to changesmandated by the Dodd Frank Act passed by Congress in 2010,including a requirement to process most swaps with a clearinghouseto cut counterparty risk. While embracing measures to adoptclearing, the industry group has opposed requirements that anycleared swap be traded on exchanges or similar electronicsystems.