ISDA: IRD market continues to grow
20 August 2018 London
Image: Shutterstock
Statistics from the International Swaps and Derivatives Association (ISDA) SwapsInfo showed that the interest rate derivatives (IRD) market continued to grow in the first half of this year.
Traded notional reached $125.8 trillion in the first six months of the year, an increase of 23.2 percent versus the first half of last year.
That follows a 16.1 percent increase in IRD traded notional over the whole of 2017 versus 2016.
The analysis, based on data reported to two US swap data repositories (the Depository Trust & Clearing Corporation and Bloomberg), also found an increase in the number of IRD transactions, said ISDA.
Trade count rose by 16.4 percent over the period, from 602,468 in the first half of last year to 701,189 in the first six months of this year. IRD trade count grew by 5.7 percent over the whole of 2017 compared with 2016.
The proportion of cleared IRD trades remains high but is little changed from 2017. Cleared IRD transactions represented 88.1 percent of total traded notional, compared to 88 percent in the first half of 2017.
Cleared IRD traded notional reached $110.8 trillion in the first half of this year, compared with $90 trillion over the same period in the previous year.
About 90,000 more trades were cleared in the first half of 2018 compared with the first half of last year – 571,932 versus 481,827.
Also in the spotlight is the transition away from London Interbank Offered Rate (Libor).
ISDA noted that the unsecured bank funding market – the basis for LIBOR and other interbank offered rates (IBORs)—has all but dried up.
Actual transactions are few and far between, and panel banks are uncomfortable about providing submissions based on judgement, it said. The lack of an active underlying market has led to real doubts about whether IBORs are sustainable in the long term.
Concern about the systemic implications of an IBOR ceasing to exist has prompted a global effort to reform interest rate benchmarks, it added.
ISDA noted that this has been catalysed by a declaration from the UK Financial Conduct Authority that it will not compel or persuade banks to make LIBOR submissions after the end of 2021.
A key strand of this work is the adoption of alternative risk-free rates recommended by various working groups, stated ISDA.
It added that the other critical component is to implement fallback language within contracts that reference an IBOR to ensure a robust alternative is clearly specified in the event an IBOR ceases to be published.
Brexit also makes an appearance. ISDA stated that Brexit will not threaten the legal validity of outstanding derivatives contracts between the EU and UK forms, but it will make it difficult to perform important lifecycle events.
Transferring these contracts to overseas affiliates is one option, but that comes with a host of problems, ISDA added.
Traded notional reached $125.8 trillion in the first six months of the year, an increase of 23.2 percent versus the first half of last year.
That follows a 16.1 percent increase in IRD traded notional over the whole of 2017 versus 2016.
The analysis, based on data reported to two US swap data repositories (the Depository Trust & Clearing Corporation and Bloomberg), also found an increase in the number of IRD transactions, said ISDA.
Trade count rose by 16.4 percent over the period, from 602,468 in the first half of last year to 701,189 in the first six months of this year. IRD trade count grew by 5.7 percent over the whole of 2017 compared with 2016.
The proportion of cleared IRD trades remains high but is little changed from 2017. Cleared IRD transactions represented 88.1 percent of total traded notional, compared to 88 percent in the first half of 2017.
Cleared IRD traded notional reached $110.8 trillion in the first half of this year, compared with $90 trillion over the same period in the previous year.
About 90,000 more trades were cleared in the first half of 2018 compared with the first half of last year – 571,932 versus 481,827.
Also in the spotlight is the transition away from London Interbank Offered Rate (Libor).
ISDA noted that the unsecured bank funding market – the basis for LIBOR and other interbank offered rates (IBORs)—has all but dried up.
Actual transactions are few and far between, and panel banks are uncomfortable about providing submissions based on judgement, it said. The lack of an active underlying market has led to real doubts about whether IBORs are sustainable in the long term.
Concern about the systemic implications of an IBOR ceasing to exist has prompted a global effort to reform interest rate benchmarks, it added.
ISDA noted that this has been catalysed by a declaration from the UK Financial Conduct Authority that it will not compel or persuade banks to make LIBOR submissions after the end of 2021.
A key strand of this work is the adoption of alternative risk-free rates recommended by various working groups, stated ISDA.
It added that the other critical component is to implement fallback language within contracts that reference an IBOR to ensure a robust alternative is clearly specified in the event an IBOR ceases to be published.
Brexit also makes an appearance. ISDA stated that Brexit will not threaten the legal validity of outstanding derivatives contracts between the EU and UK forms, but it will make it difficult to perform important lifecycle events.
Transferring these contracts to overseas affiliates is one option, but that comes with a host of problems, ISDA added.
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