At its Annual General Meeting in San Francisco today, the International Swaps and Derivatives Association, Inc. (ISDA) announced the results of its Year-End 2009 Market Survey of privately negotiated derivatives.
“ISDA continues to develop a strategic vision for the derivatives industry to make derivative processing more scalable, transparent and resilient in all asset classes,” said Eraj Shirvani, chairman of ISDA and Managing Director, Head of Fixed Income EMEA, Credit Suisse. “The lower notional amounts outstanding in this year’s survey reflect the industry’s steady progress in such key areas as electronic processing, portfolio compression and collateralized portfolio reconciliation.”
The notional amount outstanding of credit default swaps (CDS) was $30.4 trillion at year-end 2009, down 3 percent from $31.2 trillion at mid-year 2009. CDS notional outstanding for the whole of 2009 was down 21 percent from $38.6 trillion at year-end 2008. The decreases compared to prior-year periods underscore the success of the industry’s portfolio compression efforts, in which firms reduce the number of trades outstanding without affecting their risk profiles. The survey monitors credit default swaps on single names and obligations, baskets and portfolios of credits and index trades. The $30.4 trillion notional amount was approximately evenly divided between bought and sold protection: bought protection notional amount was approximately $15.4 trillion and sold protection was about $15.0 trillion, with a net bought notional amount of $451.3 billion.
Notional amount of interest rate derivatives outstanding was $426.8 trillion at year-end 2009, an increase of 3 percent compared to $414.1 trillion at mid-year 2009. For the year as a whole, interest rate derivatives notionals rose 6 percent from $403.1 trillion in 2008. As with the CDS market, the level of interest rate derivatives outstanding reflects the industry’s focus on reducing the notional amounts of their swaps portfolios, even as new trading activity remains solid. For the purposes of the survey, interest rate derivatives include interest rate swaps and options and cross-currency interest rate swaps.
Notional amounts of equity derivatives fell 23 percent to $6.8 trillion at year-end 2009. At mid-year 2009, equity derivatives notionals were $8.8 trillion. Equity derivatives notional amount for the year was down 23 percent from $8.7 trillion at year-end 2008. Equity derivatives for purposes of the survey comprise equity swaps, options, and forwards.
The above notional amounts, which total $464.0 trillion across asset classes, are an approximate measure of derivatives activity, and reflect both new transactions and those from previous periods. 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 June 2009, the Bank for International Settlements (BIS) gross mark-to-market value was approximately 4.2 percent of notional amount outstanding of all products. In addition, net credit exposure (after netting but before collateral) was 0.6 percent of notional amount outstanding. Applying these percentages to the total ISDA Market Survey notional amount outstanding of $464.0 trillion as of December 31, 2009, gross credit exposure before netting is estimated to be $19.5 trillion and credit exposure after netting is estimated to be $2.9 trillion.
The ISDA Year-End 2009 Market Survey reports notional amounts outstanding for interest rate derivatives, credit default swaps, and over-the-counter equity derivatives as of December 31, 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, 81 firms provided data on interest rate swaps; 75 provided responses on credit derivatives; and 70 provided responses on equity derivatives. Although participation in the Survey is voluntary, all major derivatives houses provided responses.
