Deep and liquid derivatives markets are fundamental to the development of well-functioning financial markets and healthy economies. They support lending, investment and financial stability, creating the certainty needed for economic growth. But strong derivatives markets do not emerge by chance. They require robust legal foundations, appropriate regulation, effective market infrastructure and technical expertise. Building those capabilities in emerging market and developing economies (EMDEs) takes long-term commitment, close engagement with local participants and strategic partnerships – and our new memorandum of understanding (MOU) with the World Bank Group (WBG) is an important step towards achieving those objectives.

Derivatives markets are not a nice-to-have – they are an absolutely fundamental component of modern financial markets. They enable risk to be managed rather than avoided, supporting local currency financing and helping banks to manage interest rate and foreign exchange exposures without restricting lending or shortening loan maturities. Vibrant derivatives markets can also improve price discovery and transparency, strengthen market resilience and increase the attractiveness of local markets for domestic and international investors, helping to channel capital into productive economic activity.

For many years, ISDA has worked with policymakers and market participants around the world to establish the legal foundations needed for safe and efficient derivatives activity. A critical component of that effort has been close-out netting. By allowing obligations between counterparties to be combined into a single net amount following a default, close-out netting reduces counterparty credit risk, supports liquidity and creates the legal certainty that market participants need to transact with confidence. ISDA’s work has contributed to positive netting opinions for more than 90 jurisdictions worldwide, and that work continues today.

But legal certainty is only part of the story. Successful derivatives markets also require appropriate regulation, effective infrastructure, reliable benchmarks, broad participation and strong risk management capabilities. Building technical expertise among local market participants is equally important. These priorities sit at the heart of ISDA’s new emerging markets strategy, reflecting a broader focus on market development that goes beyond legal reform to address the full range of conditions needed for safe, liquid and efficient derivatives markets.

Our MOU with the WBG reflects these shared objectives. The agreement establishes a framework for cooperation to support the development of deep, resilient, transparent and internationally connected capital markets, with a particular focus on domestic derivatives markets. Together, ISDA and the WBG will work to promote robust legal, regulatory and institutional foundations, including close-out netting frameworks, derivatives market infrastructure, risk management practices and technical capacity building.

As EMDEs account for a growing share of the global economy, ensuring they have access to a functioning local derivatives market will become increasingly important. But that requires strong legal, regulatory and infrastructure foundations to be in place. Through this partnership, ISDA and the WBG can help more countries build those foundations, deepen local capital markets and realize the benefits that effective risk management can bring to financial stability and economic development.