Regulatory reforms to the over-the-counter (OTC) derivatives market will eventually add an estimated 0.12% to GDP per year, according to a new report.

The Macroeconomic Assessment Group on Derivatives (MAGD), which was set up by a group of global financial regulators, published a report Monday that aims to estimate the macroeconomic effects of OTC derivatives reforms.

According to the report, the cost of various reform measures — including mandatory central clearing of standardized OTC derivatives, margin requirements for non-centrally cleared OTC derivatives, and, bank capital requirements for derivatives-related exposures — represents an economic cost of about 0.04% of GDP per year, due to financial institutions passing on the expense of holding more capital and collateral to the broader economy.

However, it also estimates the economic benefits of avoiding financial crises to be worth 0.16% of GDP per year; resulting in net benefits of 0.12% of GDP per year.

“These are estimates of the long-run consequences of the reforms, which are expected to apply once they have been fully implemented and had their full economic effects,” it notes.

Indeed, the report examines three possible scenarios, based on the fact that it believes the long-run costs and benefits will depend on how the reforms interact with derivatives portfolios and affect the structure of the derivatives market. The estimate of a 0.12% net benefit represents its central scenario. In a higher-cost scenario, it estimates the net benefit would be 0.09%, and in a lower-cost scenario, it suggests that the net benefit could be 0.13%.

In order to maximize the net benefit of the reforms, it says, “regulators and market participants must work to make as many OTC derivatives as possible safely centrally clearable, with either a modest number of central counterparties (CCPs) or with central counterparties that interoperate. This should include efforts to harmonize the rules governing cross-border transactions, so that market participants have equal access to CCPs.”

The MAGD was set up by the OTC Derivatives Coordination Group (ODCG) —comprised of the chairs of the Basel Committee on Banking Supervision, the Committee on the Global Financial System, the Committee on Payment and Settlement Systems, the Financial Stability Board, and the International Organization of Securities Commissions (IOSCO) — in order to assess the macroeconomic effects of OTC derivatives regulatory reforms.