In anticipation of ISDA’s 34th Annual General Meeting in Hong Kong, ISDA conducted a survey of derivatives markets in the Asia-Pacific region.
The survey reveals that market participants expect Asia’s derivatives markets to continue to expand, but the pace of growth will depend upon multiple factors. These include the liberalization of local financial markets and the support of regulators and policy-makers in addressing key industry issues, such as the enforceability of close-out netting. Resolving legal and regulatory uncertainties related to derivatives usage and trading will also be important.
Highlights of the survey include:
74% of respondents expect the percentage of global FX derivatives trading that takes place on trading desks in Asia ex-Japan to continue to grow over the next three to five years, while 63% expect the percentage of interest rate derivatives trading to increase.
74% of survey participants expect derivatives trading activity by Asian banks to increase over the next three to five years, while only 35% expect an increase in derivatives trading by US and European banks in Asia.
Singapore was ranked the highest in terms of importance for derivatives trading in Asia over the next three to five years, followed by Hong Kong and Tokyo.
Achieving certainty on close-out netting enforceability, legal certainty on the validity and enforceability of local collateral and the ability to use the ISDA Master Agreement in more local jurisdictions will have the greatest impact on firms’ derivatives and risk management activities in Asia.
Just 11% of survey participants believe it is very likely that legal certainty on close-out netting is achievable in China over the next three years, and 12% think it is very likely in India. Expectations for Indonesia and Vietnam remain lower at 3% in both countries.