The derivatives industry has found itself at the centre of the debate about regulatory reform, an issue that remains at the top of the international agenda. It can have no complaints about this: CDS played a massive part in whipping up the storm that engulfed Lehman Brothers, and would have claimed other high-profile and economically devastating casualties in AIG, Citi and others, but for the costly government interventions. While many argue derivatives did not cause the crisis, it is hard to argue they did not exacerbate it. The regulatory...Read more
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The derivatives market is awaiting regulatory reform with nervous anticipation. The industry’s biggest shake-up in history could have dramatic consequences for risk management practices. While some of the changes are viewed as beneficial for an efficient market, the impact for end-users could be devastating if regulators fail to take a balanced approach. Helen Bartholomew reports.
Dealers believe the arrival of CDS clearing this year will transform the marketplace, just as ISDA’s release of the 1999 credit derivatives definitions unleashed the potential of credit default swaps a decade ago. Progress has already been made and a roadmap for additional improvement has been drawn, but where the industry is headed is not entirely clear. Jean Haggerty reports.
The success of the European carbon cap-and-trade market has encouraged other countries to use the same mechanism to regulate carbon production. But regulation and government mandates are crucial to the success of the market, and the failure to update the Kyoto Protocol beyond 2012 is undermining the progress Europe has already made. Owen Wild reports.
Darrell Duffie and Haoxiang Zhu of Stanford Graduate School of Business have argued proposals for derivatives clearing become more attractive from a counterparty risk reduction perspective if a single CCP handles clearing for all large global dealers in Europe and the US. Ideally, credit derivatives should be cleared together with interest-rate swaps in the same central clearing counterparty, they said. Carving off a particular class of derivatives for clearing only makes sense if the volumes and the numbers of dealers involved are big enough...
The collapse of the property market should have provided the perfect conditions to drive growth in the property derivatives market as physical sales became all but impossible. Instead, the embryonic market slowed to a near standstill. With some tentative signs of a recovery, property derivatives could be about to get their second wind. Helen Bartholomew reports.
It has been a wild 12 months in the equities market. In march, volatility peaked as market values reached their nadir, heralding the start of a Lazarus-like recovery, in turn giving the equity derivatives market renewed confidence. Investors are taking more risk, betting on a prolonged bull market and even returning to the exotic transactions they spurned in the midst of the crisis. Dan Taylor reports.
Interest rate derivatives have looked relatively immune to the troubles afflicting most classes of derivatives since the onset of the crisis. After an initial stumble, volumes have surged. And though there has been a shift towards simplification, a renewed focus on liability management should keep corporates focused on the rates market for some time to come. Helen Bartholomew reports.