ISDA®
ISDA - INTERNATIONAL SWAPS
NEWS RELEASE
For Immediate Release, Wednesday, December 8, 2010
For More Information, Please
Contact:
Cesaltine Gregorio, ISDA New York, +1 212-901-6019, cgregorio@isda.org
Deirdre Leahy, ISDA New York, +1 212-901-6021, dleahy@isda.org
Donna Chan, ISDA Hong Kong, +852 2200 5906, dchan@isda.org
ISDA Releases Two Transparency Studies
NEW YORK, Wednesday, December 8, 2010 – The
International Swaps and Derivatives Association, Inc. (ISDA) today published
two studies on transparency in the OTC derivatives industry with respect to credit
default swaps (CDS) and interest rates swaps (IRS). The studies highlight the
spectrum of methods that can be used to increase transparency while analyzing the
benefits and costs of doing so. The papers also attempt to identify who would accrue
the additional benefits and costs in each instance. Both studies investigate
pre- and post trade transparency. They discuss the status of these two asset
classes and offer proposed steps towards increasing transparency.
For CDS, the
study found that increased transparency may affect large and small trades
differently and suggests it may be necessary to consider different transparency
requirements for large trades. The move towards central clearing of standard
CDS contracts, the study states, will increase the level of transparency as
will reporting of CDS trades to data repositories.
For the interest
rate market, trade sizes are large in notional terms but the number of trades
tends to be smaller than other markets such as equity, and trades are more
customized to meet clients' hedging needs. The study finds that the industry
would benefit from improving transparency in key areas, including considering
the "end-of-day dissemination of anonymised, composite post-trade
indicators for the interest rate market either based on current trades going
through electronic platforms or those registered in trade repositories" as
this may be more effective and easier to implement than moving IRS to
exchanges.
"These studies, coupled with other research that ISDA has recently conducted among derivatives end-users and market participants, are part of our ongoing commitment to make the OTC derivatives markets safer and more efficient by ensuring appropriate levels of transparency," said Conrad Voldstad, CEO, ISDA. "This work underscores the importance of understanding the current levels and types of transparency that exist in the various OTC derivatives markets, and of developing solutions that balance the desire for greater transparency with the need to maintain liquidity.”
Both studies
propose that a distinction be made between regulatory transparency and market
transparency. Both also warn that increased public transparency that does not
take transaction size into account may affect liquidity in the CDS and IRS
space and may have a destabilizing effect on the markets. Additionally, the
studies discuss the important impact of increased transparency on the population
of block trades.
The IRS and CDS
transparency studies form part of a set of commitments the industry made to an
international group of supervisors in March 2010. They were conducted by
Finance Concepts with input from an ISDA industry working group with
representation from buy- and sell side firms. The studies are available on the
ISDA website www.isda.org. A study on
transparency in the equity swaps market will be published next.
The studies add
to the body of research on transparency, liquidity and price competitiveness that ISDA has
conducted over the past year. ISDA’s survey of end-users in the OTC
derivatives markets showed a great level of satisfaction with the level of
pre-trade transparency for the largest asset classes and satisfactory levels of
transparency for less frequently used products.
In collaboration with an independent advisory and risk consulting firm,
ISDA conducted a blind test among market participants on liquidity,
transparency and competitiveness of the "plain vanilla" US Dollar and
Euro IRS markets. The research showed that the IRS market is extremely liquid with excellent price transparency and
competitiveness.
About ISDA
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 59
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.
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International Swaps & Derivatives Association, Inc.