For Immediate Release Wednesday, April 18, 2007
For More Information, Please Contact:
Scott Marra, ISDA Press Office,
ISDA Publishes Year-End 2006 Market Survey
BOSTON, WEDNESDAY, April 18, 2007 – At its Annual General Meeting here today, the International Swaps and Derivatives Association (ISDA®) announced the results of its Year-End 2006 Market Survey of privately negotiated derivatives.
The notional principal outstanding volume of credit default
swaps (CDS) grew 33 percent in the second half of 2006, rising from $26.0
trillion at June 30, 2006 to $34.5 trillion at December 31, 2006. This compares with 52 percent growth during the first half of 2006. CDS notional growth for
the whole of 2006 was 102 percent, compared with 103 percent during 2005. The
survey monitors credit default swaps on single-names, baskets and portfolios of
credits and index trades.
Notional amounts of interest
rate derivatives outstanding, which include interest rate swaps and options and
cross-currency interest rate swaps, grew almost 14 percent to $285.7 trillion
in the second half of 2006. For the year as a whole, interest rate derivatives
notionals rose 34 percent over 2005, which is above the annual growth rate of
recent years.
Notional amounts of equity derivatives outstanding, consisting of equity swaps,
options, and forwards, grew 12 percent from $6.4 trillion to $7.2 trillion in
the 2006 second half. Annual growth was 29 percent, compared with 34 percent
during 2005.
The above notional amounts, which total $327.4 trillion across asset classes,
are an approximate measure of derivatives activity, and reflect both new
transactions and those from previous periods. The amounts do not, however,
represent the risks associated with the activity; in order to determine risk,
it is necessary to estimate net replacement cost, which ISDA does not collect.
The Bank for International Settlements (BIS) collects both notional amounts and market values in its derivatives statistics and it is possible to use the BIS statistics to determine the amount at risk in the ISDA survey results. As of November 2006, gross mark-to-market value is approximately 2.7 percent of notional amount outstanding. In addition, net credit exposure (after netting but before collateral) is 0.5 percent of notional amount outstanding.
Applying these percentages to the total ISDA Market Survey notional amount outstanding of $327.4 trillion as of December 31, 2006, gross credit exposure before netting is estimated to be $8.8 trillion and credit exposure after netting is estimated to be $1.6 trillion.
“The privately negotiated derivatives industry continues to experience robust
growth, reflecting both continued innovation and the globalization of risk
management activity across geographic borders and business sectors,” said
Robert Pickel, Executive Director and Chief Executive Officer, ISDA. “Through
our strong global presence, and the active involvement of our members, ISDA
plays an important role in fostering innovation, reducing risk and enabling
broader adoption of these important risk management tools.”
The ISDA Year-End 2006 Market Survey reports notional amounts outstanding for
the interest rate derivatives, credit default swaps, and over-the-counter
equity derivatives as of December 30, 2006. All notional amounts have been
adjusted for double counting of inter-dealer transactions. ISDA surveys its
Primary Membership twice yearly on a confidential basis. In this survey, 96
firms provided data on interest rate swaps; 91 provided responses on credit
derivatives; and 91 provided responses on equity derivatives. Although
participation in the Survey is voluntary, all major derivatives houses provided
responses.
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 approximately 780 member institutions from 54 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.