In response to the Discussion Draft “Restoring American Financial Stability” proposed by Senate Committee on Banking, Housing and Urban Affairs Chairman, Chris Dodd, the International Swaps and Derivatives Association, Inc. (ISDA) today made the following comment:
“ISDA and the industry recognize the need to improve the regulatory framework to modernize and protect the integrity of the financial system,” said Robert Pickel, executive director and Chief Executive Officer, ISDA.
“Today there is a broad consensus amongst policymakers and the industry around the world on four initiatives that support this goal: Appropriate regulation for all financial institutions that may pose a systemic risk to the financial system; Stronger counterparty risk management (including clearinghouses); Improved transparency; And strong, resilient operational infrastructure.”
“ISDA and the industry have made significant progress in reducing risk in the privately negotiated derivatives business. Since March, approximately $3.5 trillion of credit default swaps (CDS) have been centrally cleared. Industry-wide compression or ‘tear-up’ efforts helped to significantly reduce the notional amount of CDS outstanding. The Big Bang Protocol has successfully settled more than 60 auctions globally since October 2008. And in its effort to improve transparency, ISDA is leading the development of trade repositories.”
“While significant progress is being made, ISDA and the industry remain concerned about key aspects of the legislative proposals that have been introduced. Preserving flexibility to tailor solutions to meet the needs of customers is essential. Efforts to mandate that privately negotiated derivatives business trade only on an exchange would reduce their availability. Banning naked shorting via CDS would adversely impact the credit markets. Cross-border regulatory coordination on these matters is imperative.”
