Robert Pickel, ceo at theInternational Swaps and Derivatives Association in New York, recounts for DW some of the major events surrounding the over-the-counter derivatives market last year.
The past year was a remarkable year for over-the-counter derivatives. In addition to quantifiable developments such as increasing volumes and collateral, as well as ISDA's membership base expanding with the largest ever increase of 85 institutions last year, the industry witnessed several significant market events and developments.
* ISDA released a new 2002 master agreement as well as
rewrites of the equity and credit derivatives definitions.
* The Enron collapse generated activity on multiple fronts,
mostly within the energy sector, including a sharper focus
on accounting standards, regulatory initiatives and
documentation. ISDA published a report in April that
analyzed the role of derivatives at the energy giant.
* Derivatives, and in particular credit derivatives, received
support from major government officials. Federal Reserve
chairman Alan Greenspan said, "Such instruments appear
to have effectively spread losses from defaults by Enron,
Global Crossing, Railtrack, WorldCom, and Swissair in
recent months from financial institutions with largely
short-term leverage to insurance firms, pension funds, or
others with diffuse long-term liabilities or no liabilities at
all. In particular, the still relatively small but rapidly
growing market in credit derivatives has to date functioned
well, with payouts proceeding smoothly for the most part."
The strength of the credit derivatives markets was also
echoed by the Financial Services Authority.
* The Basel Capital Adequacy Accord was also a focus of
attention. The latest activity is on the third and final
consultative paper expected to be published in the spring.
As was the case on the other consultative papers, ISDA
will be active in responding to the document.
* On the developing market front, ISDA has kept a close
watch on Latin America, Central and Eastern Europe and
Asia, all of which have experienced significant activity, with
a view toward facilitating growth and ensuring appropriate
regulatory structures and improved netting regimes.
As Greenspan commented earlier this year, "These increasingly complex financial instruments have been special contributors, particularly over the past couple of stressful years, to the development of a far more flexible, efficient, and resilient financial system than existed just a quarter-century ago." We expect the strength of the industry and expansion of existing and developing products to continue.
