Studies


DateTitle / DescriptionDocuments
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.
CommoditiesLifecycleEvents - April 25.pdf
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.
IRS compression progress report - Feb 2012.pdf
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.
OTC Derivatives June 2011 Market Analysis FINAL.pdf
December 19, 2011
AFME, ICMA and ISDA Publish Paper Analyzing the Impact of European Sovereigns’ Collateral Policies
The majority of sovereigns do not post collateral to support their use of over-the-counter (“OTC”) derivatives1. As a result, dealers regularly have credit exposure arising out of these contracts which is often hedged with the sovereign Credit Default Swaps (“CDS”), and interest rate and foreign exchange swaps and options. This process has been of particular concern in Europe because of the possible ban on the use of sovereign CDS. To assist in highlighting this and other concerns arising out of the practice not to collateralize OTC derivatives, two associations2 (“the Surveying Associations” or ”SAs”) conducted a survey of dealers earlier this year, regarding their OTC derivatives exposure to European Sovereigns (“ES”).
IMPACT OF DERIVATIVE COLLATERAL POLICIES OF EUROPEAN SOVEREIGNS.pdf
November 10, 2011
DISCUSSION PAPER: Costs and Benefits of Mandatory Electronic Execution Requirements for Interest Rate Products
An in-depth discussion and analysis of the impact of electronic execution requirements on OTC derivatives markets that were mandated by the Dodd-Frank Act. The paper explores and analyzes whether the market structure being developed by the CFTC to implement these requirements will meet the CFTC’s key goals: increase the efficiency of the market by reducing transaction costs, improving access to markets and increasing transparency. The paper also assesses the costs and expenses that market participants and ultimately end-users are likely to bear as a result of the mandate’s implementation. The analysis was developed by ISDA staff and consultants in conjunction with NERA Economic Consulting.
ISDA Mandatory Electronic Execution Discussion Paper.pdf
November 8, 2011
Counterparty Credit Risk Management in the US Over-the-Counter (OTC) Derivatives Markets, Part II: A Review of Monoline Exposures
The counterparty credit risk exposure of 12 US bank holding companies and international banking companies to monoline insurers has led to some $54 billion in write-downs by the banks since 2007. ISDA conducted this study as part of its examination into the losses incurred in the US banking system due to counterparty defaults on OTC derivatives. An earlier paper on the subject (below, dated August 5, 2011), showed such losses for US banks amounted to only $2.7 billion from 2007 through the first quarter of 2011. After further investigation, it became apparent that the transactions involving subprime mortgage risk taken in synthetic form (via derivatives) were booked in firms outside the US banking system.
Counterparty Credit Risk II (Monolines).pdf
August 5, 2011
Counterparty Credit Risk Management in the US Over-the-Counter (OTC) Derivatives Markets
This short paper examines the extent of counterparty credit losses and the efficacy of credit mitigation techniques in the U.S. banking system with respect to OTC derivatives. ISDA drew upon data from the Office of the Controller of the Currency Quarterly Report on Bank Trading and Derivatives Activities First Quarter 2011 (the OCC Report) and SEC reports filed by the parents of two non-bank entities active in structuring CDOs of sub-prime mortgages where significant losses are known to have occurred due to monoline insurance company exposure.
CounterpartyCreditLossesAug2011.pdf
May 26, 2011
OTC Derivatives Market Analysis, Year-End 2010
Analysis of the over-the-counter (OTC) derivatives market based on year-end statistics published by the Bank for International Settlements (BIS) and LCH.Clearnet’s SwapClear.
OTC Derivatives YE2010 Market Analysis final[1].pdf
May 23, 2011
DISCUSSION PAPER: The Economics of Central Clearing: Theory and Practice, by Dr. Craig Pirrong, University of Houston
Regulations requiring the clearing of certain OTC derivatives through central counterparties (CCPs) are causing a profound change in market structure and trading practices. This paper discusses how CCPs are structured and what effects increased use of them will have on the financial system. Craig Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business at the University of Houston. His research focuses on the economics of the organization of financial markets, including the economics of exchange and OTC markets, and the economics of clearing and other mechanisms for allocating counterparty credit risk. He has consulted widely with exchanges around the world, has testified before Congress on energy pricing, and has served as an expert witness in a variety of cases involving derivatives and commodities markets. He holds a Ph.D. in business economics from the University of Chicago.
ISDAdiscussion_CCP_Pirrong.pdf
March 29, 2011
Swap Execution Facilities: Can they improve the structure of OTC derivatives markets?
This paper discusses important issues associated with mandating the use of swap execution facilities (SEFs) for executing certain OTC derivatives products. It asserts that such mandates should be structured in a way that preserves the OTC derivatives market's strengths while addressing its weaknesses, presents a set of desirable SEF characteristics to meet this objective and identifies relatively modest infrastructure and transparency benefits that SEFs might bring. The paper also analyzes the proposed rules of the CFTC and the SEC required by the Dodd-Frank Act (DFA).
SEF-FinalVersion.pdf