End-User Survey: End-Users Give High Marks to Transparency, Liquidity and Pricing in Interest Rate Swaps Market
October 14, 2010
NEW YORK, Thursday, October 14, 2010—The International Swaps and Derivatives Association, Inc. (ISDA) today released the results of a survey of end-users in the interest rate swaps (IRS) market on such key issues as pre-trade price transparency, market liquidity, price competitiveness, and trading practices.
“According to our survey, corporations, investment managers and other end-users strongly believe that the interest rate swaps market is liquid and transparent,” said Conrad Voldstad, Chief Executive Officer, ISDA. “End-users carefully review pricing from multiple dealers and many use screens from vendors and dealers to ensure pricing is as competitive as possible. The survey confirms what ISDA has long believed — that interest rate swap markets are liquid and deep.”
“In addition, a strong majority of those surveyed believes the interest rate swaps market equals or surpasses four large cash markets in terms of pre-trade price transparency, the competitiveness of prices and liquidity,” said Mr Voldstad. He noted that upwards of three-quarters of surveyed end-users rate the IRS market favorably on these attributes compared to corporate bonds and asset-backed securities.
A total of 234 non-financial corporations, asset managers and other financial institutions in North America and Europe who use interest rate swaps participated in the survey. Interest rate swaps comprise the largest segment of the global over-the-counter (OTC) derivatives market.
Among the survey’s highlights:
Pre-trade Price Transparency: The majority of surveyed IRS end-users give high marks to the current level of pre-trade price transparency in the IRS 59 percent rate pre-trade price transparency at a 4 or 5 on a 1 to 5 scale. Only 17 percent of IRS end-users rate it at a 1 or 2, the two lowest levels.
Pre-trade Price Transparency vs. Other Markets: A strong majority rate pre-trade price transparency in the IRS market equal to or better than foreign exchange (FX), equities, corporate bonds and asset-backed securities (ABS). 69 percent of IRS end-users rate it equal to or better than FX and equities, while 77 percent rank it the same as or better than corporate bonds and 85 percent see it as equal to or better than ABS.
Sources of Pricing: 84 percent of the surveyed IRS end-users typically get multi-dealer quotes before executing an IRS, reflecting their sophistication and ability to easily access competing price quotes. 67 percent consult vendor screens, testifying to the availability of prices through electronic platforms and services.
Price Competitiveness: Most surveyed end-users believe the prices they receive from dealers for IRS swaps are competitive and a very few believe they are not competitive. 62 percent rate IRS price competitiveness at a 4 or 5, while only 10 percent of IRS end-users rate it at a 1 or 2, on a 5 point scale.
Liquidity: A strong majority of the surveyed IRS end-users rate the liquidity of the IRS market as equal to or better than the liquidity of the FX, equity, corporate bond and ABS 71 percent ranked it the same as or better than FX, 69 percent did so vs. equities, 83 percent vs. corporate bonds and 87 percent vs. ABS.
Electronic Trading: A majority of those surveyed (77 percent) believe electronic trading of IRS is beneficial. End-users are positively disposed to e-trading if it results in better pricing or better efficiency.
Two-thirds (67 percent) of the surveyed IRS end-users do not believe mandatory e-trading would favorably impact their ability to manage risk. On a 1 to 5 scale, 45 percent of IRS end-users rate the benefits of mandatory trading as a 1 or 2, the lowest ratings. In contrast, only 33 percent of IRS end-users rate the benefits of mandatory trading as a 4 or 5.
The IRS end-users were also asked whether post-trade price transparency would be beneficial and a majority said it would be. The survey did not probe for respondents’ views on the costs, nature or structure of post-trade transparency.
The IRS survey results, including a slide presentation, are available on the ISDA website, www.isda.org.
About the Survey
The ISDA End-User Survey was conducted online in July and August 2010. 295 non-financial corporations, asset managers and other financial institutions from North America and Europe who use OTC derivatives participated in the survey. Of these 295 firms, 80 percent or 234 used interest rate swaps (IRS), 59 percent or 174 used currency/FX swaps, 27 percent or 80 used credit default swaps (CDS), 25 percent or 74 used equity swaps and 32 percent or 94 used commodity/energy swaps. Respondents were asked their opinions only on those OTC derivatives that they said they have used. ISDA plans to release two additional reports based on End-User Survey results—one on credit default swaps and the other on commodity/energy swaps—in coming weeks.
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 over 830 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.
ISDA is a registered trademark of the International Swaps & Derivatives Association, Inc.