For Immediate Release Wednesday, September 27, 2006
For More Information, Please Contact:
Louise Marshall, ISDA New York, 212-901-6000, lmarshall@isda.org
ISDA PLEDGES CONTINUED OPERATIONAL INNOVATION;
FACILITATES CASH SETTLEMENT FOR CREDIT DERIVATIVES
NEW YORK, Wednesday, September 27, 2006 -- The International Swaps and Derivatives Association today reinforced its commitment to leading industry efforts in improving operational efficiencies with the announcement of a protocol to enable cash settlement of credit derivatives. ISDA’s new protocol permits cash settlement of single-name, index, tranche and certain other plain vanilla credit derivative transactions.
“ISDA’s new cash settlement protocol is another major step in streamlining market and operational processes for privately negotiated derivatives,” said Robert Pickel, ISDA CEO, speaking at the Association’s New York regional conference. “ISDA is at the core of industry efforts to improve operational efficiency amid the challenges of rapid growth. Working hand in hand with its members to ensure that those challenges are consistently met, we will continue to provide that direction with an extensive range of important initiatives."
Mr. Pickel’s remarks were made against the backdrop of today’s meeting of major financial market regulators with a group of 16 banks to review the industry’s progress on operational issues related to credit derivatives and other types of derivative.
“We are pleased to have played a major part in the real change to business processes that has facilitated significant improvements across the operational landscape. ISDA will continue to provide the forum for identifying and prioritizing areas of focus for its members," said Mr. Pickel. "To effect these changes, we have focused the industry on standardization, automation, increased specialist staffing and close monitoring of industry metrics, as well as the practice of bilateral 'lock-ins' to reduce confirmations work in hand between parties."
Working with ISDA, the industry has determined to address equity derivatives confirmations as an area of immediate priority. Members will be assisted in this task by the increasing availability of automated solutions, supported by Financial products Mark-up Language.
Mr. Pickel noted that the industry’s strong progress in improving credit derivatives processing has been significantly assisted by an extensive range of ISDA initiatives in operations and documentation. Earlier this year the Association announced a dramatic reduction in backlogs of outstanding confirmations by over 80% on average since September 30, 2005. The 2005 ISDA Novation Protocol played a key role in effecting this reduction and continues to prove its effectiveness in having removed a major potential source of outstanding confirmations. Along with a series of ad hoc protocols to facilitate cash settlement of credit derivatives, this continues the important work to streamline operational efficiencies that began with the publication of ISDA's Operations Strategic Plan in December 2003, closely followed by its Operations Implementation Plan in March 2004.
“Through its work, the Association has helped to build a sound infrastructure for privately negotiated derivatives activity, which has enabled continued innovation and growth in our business, enhanced the ability of firms around the globe to manage risk, and contributed to greater stability in global financial markets,” said Mr. Pickel.
The new cash settlement mechanism will be utilized for settlement of the earliest credit event under the 2003 ISDA Credit Derivatives Definitions and corresponding index documentation. Its effectiveness will be assessed on completion of the settlement process for affected trades. The cash settlement mechanism will ultimately be incorporated into a new set of Credit Derivative Definitions, which will also address dispute resolution for credit derivative transactions, and which are anticipated for publication in 2007.
About ISDA
ISDA, which represents participants in the privately negotiated derivatives industry, is the largest global financial trade association, by number of member firms. ISDA was chartered in 1985, and today has over 725 member institutions from 50 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.
About FpML
FpML (Financial products Markup Language) is the freely licensed business information exchange standard for electronic dealing and processing of privately negotiated derivatives and structured products. It establishes the industry protocol for sharing information on, and dealing in, financial derivatives and structured products over the Internet. It is based on XML (Extensible Markup Language), the standard meta-language for describing data shared between applications. The standard is developed under the auspices of ISDA, using the ISDA derivatives documentation as the basis.