Regulatory Landscape for OTC Derivatives
Recently, the President’s Working Group on Financial Market’s (PWG) established a series
of initiatives to strengthen oversight, transparency and the creation of a centralized market
infrastructure for CDS. ISDA endorses the PWG’s call for the adoption of best practices
with respect to risk management for OTC derivatives activities, including public reporting,
liquidity management, senior management oversight and counterparty credit risk management.
This also includes the use of legally-
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ISDA Highlights Commitments to NY Fed
Although recent market events have impacted the derivatives industry by increasing operational
processing demands and challenging the infrastructure to manage increased trade
activity and risk management, ISDA has improved the efficiency and transparency of the
privately negotiated business via the continued standardization of documentation, promotion of
sound risk management practices and education of the marketplace.
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Initiatives Reduce Notional Outstanding Amounts
A series of initiatives by the industry are proving beneficial by reducing notional amounts outstanding in CDS, significantly reducing operational, legal and capital costs for industry participants, and improving operational efficiency in CDS. In 2008, efforts to reduce notional outstanding amounts have been rewarded by a decrease of over $25 trillion in CDS notionals. This reflects a range of activities, including compression exercises run by Trioptima, Creditex and Markit. In addition, auctions and settlements of the recent series of credit events, including Fannie Mae, Freddie Mac and Lehman Brothers, have proceeded smoothly. Trioptima has reduced the amount of CDS notional outstandings through its series of compression cycles (also known as tear-ups), which include index, tranche and single-name trades. Additional efforts implemented by Creditex and Markit, which also focus on the single name space, began as recently as September and now account for $550 billion in compressions.
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