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April 9, 2014
The Value of OTC Derivatives: Case Study Analyses of Hedges by Publicly Traded Non-Financial Firms
The goal of this study is to examine the value of over-the-counter (OTC) derivatives for publicly traded non-financial firms. We analyze several publicly traded firms that reported the use of OTC derivatives in their 10-K filings with the Securities and Exchange Commission (SEC), or to us directly, and develop four case studies based on this analysis.
To investigate the value of OTC derivatives, we assume these firms did not have access to OTC markets and replicate their hedges using derivative instruments available at the same time on the exchanges. Using historical data in each firm’s 10-K reports and historical price time series for exchange-traded derivatives, we evaluate the effectiveness of the new hedges, the accounting treatment, and the impact on the earnings per share.
We also investigate the margin requirements for OTC derivatives transactions if non-financial firms were required to post margin on their non-cleared transactions or were required to clear and consequently post margin to clearing members or central counterparties directly. As of September 2013, non-financial firms are exempt from these requirements for hedging commercial risks, such as the case studies we investigate in this study. Overall, we find that OTC derivatives are more effective and reduce earnings volatility as compared to exchange-traded derivatives.
April 9, 2014
Size and Uses of the Non-Cleared Derivatives Market
The derivatives industry has made huge progress in moving towards central clearing, particularly in the interest rate derivatives (IRD) space. By the end of 2013, approximately 65% of IRD notional outstanding had been cleared through central counterparties (CCPs), even before clearing mandates are in force in much of the world. This figure will increase as more countries develop the relevant infrastructure and mandates take effect.
However, a meaningful portion of the derivatives market will remain uncleared.
This ISDA study focuses specifically on the interest rate derivatives market to analyse the size of the non-cleared segment and the instruments it encompasses. The report then describes some common uses for these products by derivatives end-users.
June 20, 2013
OTC Derivatives Market Analysis Year-End 2012
ISDA produces its Market Analysis to correspond 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. ISDA’s reporting aims to integrate market data to show the impact of netting, collateralization, portfolio compression and central clearing on notional amounts and risk exposures in the over-the-counter (OTC) derivatives markets. 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. Updated on August 9, 2013.
March 13, 2013
Non-Cleared OTC Derivatives: Their Importance to the Global Economy
Non-cleared OTC derivatives create significant value to the economy, from enabling companies and governments to manage risk in their operations, to helping pension funds meet their obligations to retirees. Current regulatory proposals on margin requirements pose a threat to the continued functioning of this vital market segment. This ISDA paper explains what non-cleared OTC derivatives are, who uses them, why some – but not all – will be cleared, and the impact of the regulatory proposals.
December 20, 2012
OTC Derivatives Market Analysis, Mid-Year 2012
ISDA produces its Market Analysis to correspond 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 June 30, 2012. Our report aims to integrate market data to show the impact of clearing, netting, compression and collateral on notional amounts and risk exposures in the OTC derivatives markets. 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.
June 6, 2012
OTC Derivatives Market Analysis, Year-end 2011
ISDA produces its Market Analysis to correspond with the release of the Bank for International Settlement’s (BIS) semi-annual statistical release, the most recent of which covered the period ending December 31, 2011. ISDA’s reporting aims to integrate market data to show the impact of clearing, netting, compression and collateral on notional amounts and risk exposures in the over-the-counter (OTC) derivatives markets. Counterparty credit losses from the Office of the Comptroller of the Currency (OCC) report are also presented.
May 23, 2012
Netting and Offsetting: Reporting derivatives under U.S. GAAP and under IFRS
The paper is intended to give the reader an insight into the different offsetting requirements under IFRS and U.S. GAAP and their impact on the new Basel III Leverage Ratio.
April 25, 2012
OTC Commodity Derivatives Trade Processing Lifecycle Events
The paper analyzes existing and potential opportunities for further standardization in the OTC commodity derivatives markets in order to drive improvements in operational efficiency, reduce operational risk, and increase netting and clearing for appropriate products. It also provides a summary of OTC commodity derivatives markets’ trade processing lifecycle events and an overview of the current industry state of processing.
February 23, 2012
Interest Rate Swaps Compression: A Progress Report
Portfolio Compression is a risk reduction practice is conducted in the interest rate swaps (IRS) market. This paper includes: an overview of the compression process, metrics on the significant progress achieved to date, the challenges that need to be met to increase compression by a significant amount, the approaches of four major dealers to maximize benefits and an estimate of what is possible in terms of potential notional that might be compressed.
December 21, 2011
OTC Derivatives Market Analysis, Mid-2011
Analysis of the over-the-counter (OTC) derivatives market based on statistics as of June 30, 2011.