ISDA®
INTERNATIONAL
SWAPS AND DERIVATIVES ASSOCIATION, INC.
NEWS RELEASE
For Immediate Release, Monday, December 8, 2008
For More Information, Please Contact:
Louise Marshall, ISDA New York, +1 212-901-6014, lmarshall@isda.org
Cesaltine Gregorio, ISDA New York, +1 212-901-6019,
cgregorio@isda.org
Donna Chan,
ISDA Hong Kong, +852 2200 5906, dchan@isda.org
ISDA CEO APPLAUDS STRENGTH OF OTC INFRASTRUCTURE THROUGHOUT
RECENT FINANCIAL MARKETS TURMOIL: HOUSE TESTIMONY
“CDS are an efficient means of hedging risk or adjusting positions,” said Mr. Pickel in his testimony. “They remain an accurate indicator of credit quality, are highly liquid, and have been the best way to manage or express a view on credit risk in troubled times when cash and securities markets have seized up.”
Mr. Pickel
outlined in his testimony the industry’s and ISDA’s ongoing efforts to identify
and reduce the sources of risk in the privately negotiated derivatives
business. ISDA and its members continue to work with the President's Working
Group (PWG), the Federal Reserve, the SEC and other regulators towards
operational enhancements in the CDS industry.
In
addition to these ongoing efforts, the PWG announced a series of policy
objectives for the OTC industry on November 14. The PWG divided its recommendations
into four broad categories: 1) improving the transparency and integrity of the
credit default swaps market; 2) enhancing risk management of OTC derivatives;
3) further strengthening the OTC derivatives market infrastructure; and 4)
strengthening cooperation among regulatory authorities. ISDA supports these
four objectives and believes that continuing to pursue the improvements
industry and regulators have worked on over the last several years is key to
ensuring the OTC derivatives industry in the
The PWG also released a Memorandum of Understanding among the Federal Reserve, the Commodities Futures Trading Commission and the Securities and Exchange Commission related to regulation of central counterparties. This Memorandum is an important step in ensuring that regulators do not work at cross-purposes while working to facilitate the creation of a central clearinghouse.
One result
of the industry's efforts is that central counterparty clearing of CDS in the
Mr. Pickel also emphasized the European Commission’s belief
in the need for a "European clearing solution," regardless of what is
done in the
During his testimony, Mr. Pickel discussed ISDA's semi-annual survey, which, at mid-year 2008, stated that the notional amount outstanding of CDS decreased by 12 percent in the first six months of the year to $54.6 trillion from $62.2 trillion. This reduction in outstanding notionals represents a significant achievement for the industry in addressing operational and transaction management issues, and is just one example of efforts being undertaken, in coordination with regulators, to help ensure the operational infrastructure of the OTC industry is sound and able to withstand any challenges.
Mr. Pickel also stated that the CDS market has held up extremely well under the strains of multiple failures of large market participants and issuers of debt. The auction and settlement process have performed effectively, and the collateral and netting arrangements among market participants have operated as intended. The current turmoil has exposed the need for market participants to increase the speed with which they implement operational improvements and to commit to examining what further improvements might be necessary.
A complete transcript of Robert Pickel’s testimony is available at 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 approximately 850 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.
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International Swaps & Derivatives Association, Inc.