ISDA®
INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION
NEWS RELEASE

For Release Friday, May 3, 2002 12:01 AM (EST)

For More Information, Please Contact:
Stacy Carey, ISDA New York, (212) 901-6000; Fax (212) 901-6001; scarey@isda.org
Richard Metcalfe, ISDA London, 207 330-3550; rmetcalfe@isda-eur.org

ISDA STATEMENT
FSA CROSS-SECTOR RISK TRANSFERS DISCUSSION PAPER

NEW YORK, Friday, May 3, 2002 - The International Swaps and Derivatives Association (ISDA) offered preliminary reaction to the Financial Services Authority (FSA) Discussion Paper on Cross-Sector Risk Transfers.

"ISDA welcomes the FSA discussion paper and its discussion of the credit derivative markets," said Robert G. Pickel, Executive Director and CEO of ISDA. Of particular note is the FSA's acknowledgement that the credit derivative market is resilient and there are concerted efforts by the main players to ensure that confidence in the product remains high. "We agree with this conclusion and have continuously worked with our members and others toward assuring this high level of confidence in the credit derivative market," said Pickel.

The FSA discussion paper highlights the rapid development of credit derivative markets since the mid-90s. ISDA attributes this growth to the intervention of an increasing number of investors, including insurance companies. Greater diversity among market players has in turn enhanced liquidity and reduced systemic risk.

From a risk management perspective, ISDA believes that financial institutions participating in the credit derivative and securitisation markets have a clear understanding of the risks involved. "ISDA broadly supports the conclusions reached by FSA regarding the need for senior management scrutiny of risk transfer activities, and for the use of appropriate risk management systems," said Emmanuelle Sebton, ISDA's Head of Risk Management.

"ISDA looks forward to hearing FSA's conclusions regarding the need for adjustment of the regulatory capital rules," added Sebton. "ISDA has taken an active part in the current review of the 1988 Capital Accord, which we hope will introduce a more risk sensitive treatment of credit risk mitigation tools."

Given ISDA's active involvement in regulatory capital issues, it notes with interest the FSA's intention to review the treatment of portfolio credit default swaps in the trading book. The Association has always advocated enhanced international co-operation between financial and insurance regulators in the hope of reducing uncertainty and discrepancy in the way credit risk mitigants are treated on an institutional and cross border basis.

ISDA intends to provide the FSA with more formal feedback regarding the entire discussion paper during the comment period.

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