19 April 2007

finextra: Isda trumpets progress in credit derivatives while regulators sound alarm

Strong progress has been made in speeding up post-trade processing and cutting the backlog of outstanding confirmations in the fast growing credit and equity derivatives markets, says the International Swaps and Derivatives Association (ISDA). Post-trade processing of privately negotiated derivatives transactions continues to significantly improve, says Isda, with dealers reducing levels of outstanding confirmations across the asset classes.

Isda's benchmark survey shows the time it takes to process credit derivative trades has fallen to 5.5 days, compared with 16.2 days in 2006, and there has been a reduction to 14 from 50 days for rates products.

Equity levels have fallen to 21 days from around 50, while commodities stand at 7.5 days compared to 23.3 days a year ago. Among the large firms, over 70% of credit derivatives confirmations are sent out by T+1, up from 50% a year ago.

Commenting on the figures, Robert Pickel, executive director and chief executive officer, Isda, says: 'Against a backdrop of robust growth in our business, the industry continues to make real progress in strengthening its operational infrastructure and reducing risk.'

But speaking at Isda's annual meeting Jean-Claude Trichet, president of the European Central Bank, called for further market action to improve transparency in global credit derivatives sector and warned that financial markets may have become 'excessively complacent'.

Reflecting the concerns of regulators worldwide, Trichet warned that credit derivative instruments had not yet been properly 'stress-tested', observing that some aggressive investors seemed to display a cavalier risk-taking attitude even while their balance sheets were not necessarily resilient enough to handle shocks.

© finextra