ISDA®
INTERNATIONAL
SWAPS
NEWS
RELEASE
For Immediate Release, Monday, March
8, 2010
For
More Information, Please Contact:
Cesaltine
Gregorio, ISDA New York, +1 212-901-6019, cgregorio@isda.org
Deirdre Leahy, ISDA New York, +1
212-901-6021, dleahy@isda.org
Donna Chan, ISDA Hong Kong, +852 2200 5906, dchan@isda.org
ISDA Publishes the Market Review of OTC Bilateral
Collateralization Practices and Independent Amount Whitepaper
“Collateralization has become a key
method of mitigating counterparty credit risk in the derivative markets,” said
Julian Day, Head of Trading
Infrastructure, ISDA. “ISDA
and the industry continue to work toward the increased smooth functioning of the
collateralization process of OTC derivatives transactions through its efforts
in relation to standards and best practices, and collateral law reform efforts
across the globe.”
The documents are
designed to provide better understanding of current market practices. In these documents, a number of
recommendations were made for market participants to enhance practice or
understanding in the collateral management arena.
The
Independent Amount Whitepaper examines the risks associated with
under-collateralization or over-collateralization associated with Independent
Amounts under ISDA Credit Support Annexes, and the potential alternatives that
may be developed by the derivatives market to protect participants. The Whitepaper was jointly produced by ISDA, the
Managed Funds Association (MFA) and the Securities Industry and Financial
Markets Association (SIFMA). It was one of the commitments outlined in the
derivative industry letter global supervisors dated June 2, 2009.
The
Market Review of OTC Bilateral Collateralization Practices is a broad market
review of bilateral collateralization practices for OTC derivatives to
facilitate better understanding of current market practice, especially as it
relates to the different types of counterparties active in the market. The objective of the review is to enable a more
complete appreciation of the use of collateral as a credit risk mitigant across
the diverse OTC derivative market, including some of the motivations,
capabilities, limitations, and typical practices of market participants engaging
in collateralization. ISDA has worked collaboratively with regulators to determine
the appropriate scope of this analysis.
The
Independent Amount Whitepaper and the Market Review are both key publications from
the ISDA Collateral Steering Committee that provide the context for
collateralization as a risk reduction technique across market participants.
Additionally, on March 1, 2010 the
industry set new goals in the areas of
Portfolio Reconciliations and Dispute Resolution, updated the roadmap for
improving collateral management and re-affirmed its intention to complete development
of an enhanced industry framework for resolving disputed margin calls. Each of these initiatives take into account
risk, liquidity, default management and other processes with a goal of securing
operational efficiency, mitigating operational risk and increasing the netting
and clearing potential for appropriate products.
Both the ISDA
Independent Amount Whitepaper and Market Review of OTC Bilateral
Collateralization Practices are available on the “Collateral Committee” page of
the ISDA website: www.isda.org.
About ISDA
ISDA, which represents participants
in the privately negotiated derivatives industry, is among the world’s largest
global financial trade associations as measured by number of member firms. ISDA
was chartered in 1985, and today has over 810 member institutions from 57
countries on six continents. These members include most of the world’s major
institutions that deal in privately negotiated derivatives, as well as many of
the businesses, governmental entities and other end users that rely on
over-the-counter derivatives to manage efficiently the financial market risks
inherent in their core economic activities. Information about ISDA and
its activities is available on the Association's web site: www.isda.org.
ISDA®
is a registered trademark of the International Swaps &
Derivatives Association, Inc.