OTC Derivatives Market Analysis Year-End 2012

The OTC derivatives market continues to provide essential risk management tools for all sectors of the global economy, for entities such as corporations, pension funds, investment firms, insurance companies and governments.

The industry has worked very hard, using tools such as netting, collateralization, portfolio compression and central clearing, to reduce risks in the system in accordance with G20 goals.

ISDA produces its Market Analysis to integrate market data to show the impact of these and other tools. For example, portfolio compression has significantly reduced notional amounts outstanding by 25% or more. Clearing, on the other hand, has the opposite effect and “artificially” increases notional outstanding. In addition, notional amounts, which are commonly used to describe the size of the market, are inappropriate for risk measurement purposes. Gross market value and gross credit exposure (which reflects netting) are far better measures of risk.

The publication of the Market Analysis corresponds with the release of the Bank for International Settlement’s (BIS) semi-annual statistical release. The BIS’s most recent release covered the period ending December 31, 2012.

The Market Analysis draws on information sources including LCH.Clearnet’s SwapClear, TriOptima, the DTCC Trade Information Warehouse, Markit, ICE, CME, ISDA’s 2012 Margin Survey and other clearinghouses and trade vendors.

Links to data sources are at the end of this paper. ISDA welcomes suggestions from readers regarding additional improvements to the Market Analysis.

Documents (1) for OTC Derivatives Market Analysis Year-End 2012

Joint Letter on Simplification of EU Taxonomy

On October 6, ISDA, the Association for Financial Markets in Europe (AFME), the European Fund and Asset Management Association (EFAMA), the European Association of Co-operative Banks (EACB) and the European Banking Federation (EBF) published a policy statement in support of...

Paper on Removal of SI Regime

On October 10, ISDA, the Association for Financial Markets in Europe (AFME) and the International Capital Market Association (ICMA) published a paper on the practical implications of the recent discontinuation of the systematic internalizer (SI) regime for derivatives, bonds and...

Episode 52: Innovative Thinking

The pace of change in derivatives markets shows no sign of letting up, with rapid evolution across trading, regulation and technology. Industry veteran Don Wilson, founder of trading firm DRW, talks to The Swap about some of the biggest trends....