As ISDA marks its 40th anniversary this year, it is an opportune time to reflect on the challenges and opportunities faced by the global derivatives markets over the past four decades. Rapid growth, continued innovation, regulatory reform, central clearing, margining, LIBOR transition and a commitment to enhancing the resiliency of markets are all key features of this narrative.

Now is also the time to look ahead. The need for economic growth and jobs creation is leading to a renewed focus on ensuring financial institutions can channel funding to the real economy and productive investments. This requires strong and deep financial and hedging markets for financial institutions, corporations and governments around the world.

While old lessons must not be forgotten, new issues are arising, and new lessons need to be learned. For example, several incidents in recent years – including the March 2020 dash for cash and the September 2022 UK gilt crisis – have raised concerns about liquidity in financial markets. At the same time, market competition and advances in technology continue to drive innovation and greater efficiency.

Within this context, and as part of its mission to foster safe and efficient derivatives markets to facilitate effective risk management for all users of derivatives products, ISDA has identified several recommendations for consideration by policymakers, market participants and others. These recommendations mostly center on capital, margin and market/reporting regulations and are focused on:

• Ensuring robust, resilient markets to support capital formation and allocation to the real economy.
• Promoting more effective and efficient risk management to enable market-making and hedging of risk exposures.
• Mitigating negative impacts of cross-border inconsistencies to enable cross-border capital flows and risk hedging.
• Reducing redundancies and unnecessary costs in regulatory requirements.

This paper explores these issues in more detail across and/or within the US, UK and EU. The most immediate priorities, many of which are under discussion now by market participants and policymakers, appear in bold. Other issues are longer-term in nature and require additional analysis or research to develop an optimal policy recommendation and/or solution.

Click on the attached PDF to read the full report.