Members of the International Swaps and Derivatives Association have raised concerns about the growth rate of the Japanese credit derivatives market and the trade association has decided to measure it to find out what can be done. The survey, which is available on DW's Web site, states, "No one would doubt that [the] Japanese credit derivatives market lags behind the growth of [the] U.S. and European credit derivative markets." Kumi Namba, assistant policy director at ISDA in Tokyo, confirmed the survey, but declined further comment.
The Japanese market has largely stagnated over the past couple of years, while the global credit derivatives market grew by some 33% in the second half of last year, according to the survey. Ironically, in the last few weeks dealers have started to see a pick-up in volumes on the back of more volatile markets globally (DW, 5/31).
The questionnaire also addresses the never-ending controversy over whether a credit derivative should have two or three credit event triggers. Several prominent end users in Japan were in favor of dropping the restructuring credit event last year (DW, 4/7/03), but many dealers have been quoting prices for both.
Bankers, however, are not holding their breath for a post-survey revolution. "I'm skeptical on the possibilities for change, but it's a valid question and this could better clarify the market picture," said a credit head in Tokyo. He continued while he believes the structural nature of the market, such as typically low volatility and tight spreads will prevent any major jump in volumes, the survey is a positive, as it will outline the size of the credit market in Japan if nothing else.
The largest survey of the global credit derivatives market is done by the British Bankers' Association, but it does not separate Japan. The ISDA survey will be the first to detail the market in Japan and will gather data on the types of instruments traded as well as suggestions on how to improve the market. All the data will be collated by ISDA staff members, Namba's e-mail assures the highly secretive bankers that not even ISDA committee chairs will see individual firm's data.
