The International Swaps and Derivatives Association, Inc. (ISDA) today announced at its 2009 Regional Conference in New York the results of its Mid-Year 2009 Market Survey of privately negotiated derivatives.
“The derivatives business overall showed consistent growth in the first half of 2009, demonstrating the need for customized risk management solutions to help navigate the more uncertain economic landscape,” said Eraj Shirvani, chairman, ISDA and Head of Fixed Income for EMEA at Credit Suisse. "This continued growth is a testament to both the utility of derivative instruments and to the industry’s ongoing efforts to reduce risk and enhance operational efficiency."
"These survey results reflect the continued resiliency of the privately negotiated derivatives industry and its benefit to businesses globally," said Robert Pickel, executive director and chief executive officer, ISDA. "The reduction in CDS outstanding highlights the great progress made through the industry’s implementation of operational enhancements, in particular through its achievements in portfolio compression."
According to the Survey, notional amount outstanding of credit derivatives decreased by 19 percent in the first six months of the year to $31.2 trillion from $38.6 trillion. Over the preceding twelve months, credit derivative notional amounts decreased by 43 percent from $54.6 trillion at mid-year 2008. For the purposes of the Survey, credit derivatives comprise credit default swaps referencing single names, indexes, baskets, securitized obligations, and portfolios.
Notional amount outstanding of interest rate derivatives, which include interest rate swaps and options and cross-currency swaps, grew by 3 percent to $414.1 trillion from $403.1 trillion. This compares with a 13 percent decrease from $464.7 trillion during the second half of 2008. Over the preceding twelve months, interest rate derivatives decreased by 11 percent from $464.7 trillion in mid-2008.
Notional amount outstanding of equity derivatives, which consist of equity swaps, options, and forwards, remained relatively flat at $8.8 trillion. This compares with a 27 percent decrease from $11.8 trillion during the second half of 2008. The annual growth rate for equity derivatives to mid-2009 decreased by 26 percent to $8.8 trillion from $11.8 trillion at mid-year 2008.
The above notional amounts, which total $454.1 trillion across asset classes, are an approximate measure of derivatives activity, and reflect both new transactions and existing transactions. The amounts, however, are a measure of activity, not a measure of risk. The Bank for International Settlements (BIS) collects both notional amounts and market values in its derivatives statistics and it is possible to use the BIS statistics to determine the amount at risk in the ISDA survey results.
As of December 2008, gross mark-to-market value of all derivatives was approximately 5.7 percent of notional amount outstanding. In addition, net credit exposure (after netting but before collateral) is 0.8 percent of notional amount outstanding. Applying these percentages to the total ISDA Market Survey notional amount outstanding of $454.1 trillion as of June 30, 2009, gross credit exposure before netting is estimated to be $26.0 trillion and credit exposure after netting, but before collateral, is estimated to be $3.8 trillion.
The ISDA Mid-Year 2009 Market Survey reports notional amounts outstanding for the interest rate derivatives, credit default swaps, and over-the-counter equity derivatives as of June 30, 2009. All notional amounts have been adjusted for double counting of inter-dealer transactions. ISDA surveys its Primary Membership twice yearly on a confidential basis. In this survey, 86 firms provided data on interest rate swaps; 78 provided responses on credit derivatives; and 77 provided responses on equity derivatives. Although participation in the Survey is voluntary, all major derivatives houses provided responses.