In testimony before the US House of Representatives Subcommittee on Capital Markets, Insurance, and Government Regulation Committee on Financial Services, Robert Pickel, executive director and chief executive officer of the International Swaps and Derivatives Association, Inc (ISDA), today addressed public policy considerations regarding the OTC derivatives business.
“The OTC derivatives industry is an important part of the financial services business in this country and the services we provide help companies of all shapes and sizes,” said Pickel in his testimony. “Let me assure you that we in the derivatives industry do recognize the challenges that we face as we seek to enact a comprehensive and prudent system of regulatory reform.”
In his testimony, Pickel outlined ISDA’s and the industry’s strong commitment to identifying and reducing risk in the privately negotiated derivatives business, emphasizing the following points:
OTC derivatives offer significant value to the customers who use them, to the dealers who provide them, and to the financial system in general by enabling the transfer of risk between counterparties;
ISDA recognizes that the industry faces significant challenges, and is urgently moving forward with new solutions;
ISDA has delivered and is delivering on a series of reforms in order to promote greater standardization and resilience in the derivatives markets;
These developments have been closely overseen and encouraged by regulators, who recognize that optimal solutions to market issues are usually achieved through the participation of market participants;
As ISDA and the industry work to reduce risk, ISDA believes it is essential to preserve flexibility to tailor solutions to meet the needs of customers. Efforts to mandate that privately negotiated derivatives business trade only on an exchange would effectively stop any such business from being conducted. Requiring exchange trading of all derivatives would harm the ability of American companies to manage their individual, unique financial risks and ultimately, harm the economy.
Pickel concluded his testimony by stating that ISDA and the OTC derivatives industry are committed to engaging with supervisors globally to expand upon the substantial improvements that have been made in the business since 2005. ISDA knows that further action is required, and pledges its support in these efforts. ISDA believes that much additional progress can be made within a relatively short period of time.
In a June 2, letter to the Federal Reserve Bank of New York this month, ISDA and the industry expressed a “firm commitment to strengthen the resilience and robustness of the OTC derivatives markets.” The letter stated, “We are determined to implement changes to risk management, processing and transparency that will significantly transform the risk profile of these important financial markets…”
The letter outlined a number of steps toward that end, specifically in the areas of information transparency and central counterparty clearing.
A complete transcript of Robert Pickel’s testimony is available at www.isda.org.