ISDA OTC Derivatives Market Analysis, Year-end 2011

06 June 2012

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 OTC derivatives markets. Counterparty credit losses from the Office of the Comptroller of the Currency (OCC) report are also presented.

ISDA believes that FX contracts differ meaningfully from other OTC derivatives contracts. FX contracts typically reach maturity within a few months while other OTC derivatives mature over much longer time periods. The US Treasury has also recommended that FX swaps and forwards be exempt from the clearing and execution requirements enacted under the Dodd-Frank Act.

ISDA believes it is important to report on industry progress in clearing, particularly in IRS. There are three reported amounts to monitor: notional amount of cleared IRS; per cent of total IRS cleared; and notional amount of uncleared IRS. The headline measure ‒ the amount of cleared IRS ‒ is somewhat misleading as it does not include IRS that had been cleared but have since been compressed or torn up. The per cent of cleared IRS is misleading for the same reason. That is why the third measure ‒ the notional amount of uncleared IRS ‒ is most meaningful in ISDA’s view.

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