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Derivatives

Jonathan Moulds, ISDA Chair

Moulds was recently appointed head of international debt and equity markets at Bank of America and also took on the chairman's spot at the International Swaps and Derivatives Association in November.

 

 

Jonathan Moulds

Moulds was recently appointed head of international debt and equity markets at Bank of America and also took on the chairman's spot at the International Swaps and Derivatives Association in November. He outlines his views and goals for the market below.  

DW: Why is the ISDA chairman's role a good move for you now?

JM: The overall growth of revenues across Wall Street, particularly in debt businesses, has been impressive over the past few years. Derivatives have played a key role in that growth and are central to many firms' overall markets strategies. The derivatives markets have also continued to evolve--while certain products, such as rate swaps, have become more commoditized. There has obviously been significant growth in the credit derivatives market over recent years, the inflation-linked derivative market has ballooned and we have seen continued innovation in hybrid products. Plus, of course, we have also seen convergence in the way that certain derivative and underlying cash products are risk managed and marketed.

 

DW: How is that being reflected structurally?

JM: As an example, in many organizations, rate derivatives, government and agency debt as well as certain mortgage products are managed in the same unit. This allows a more consistent approach to risk management as well as ensuring that client transactions, particularly larger institutional cross-product flows can be more efficiently priced. Both clients and banks are beneficiaries. Credit and equity derivatives combinations vary by bank. Some banks are pushing full integration. Others continue to manage cross-asset class structuring/sales as joint ventures between independent fixed income and equity divisions and some firms have merged fixed income and equity divisions at a higher level. So, while there are issues that are very specific to the different derivatives markets, there are also areas where the agendas and interest of the cash and derivatives markets are aligned.

 

DW: Which areas, for example?

JM: Obvious areas of commonality of interest are on the regulatory and accounting fronts. As an example, look at the challenges and hurdles to be overcome in ensuring the establishment of a coherent approach to accounting standards across the E.U. These are clearly areas in which co-operation between the major industry bodies makes a good deal of sense.

 

DW: How is ISDA responding to the increasing developments on the technology front?

JM: I have no doubt that our use of technology is and should be central to the continued growth of the industry. Streamlining the operational process is key. Issues relating to confirmation backlogs, operational and settlement risk are reduced enormously by more efficient use of new and developing technologies. ISDA's merger with the FpML organization a couple of years back is a clear example of the importance it is placing around the use and benefits technology can bring. ISDA is here to encourage and facilitate cooperation and collaboration among market participants. We have made great strides through recent initiatives, but in fast developing areas, such as credit derivatives, there is more work to do.

 

DW: Is the growth rate of derivatives in any doubt?

JM: Barring any attempts to introduce prohibitive regulation or accounting policies, I believe we will see derivatives activity continue to grow vigorously in volume and scope. New markets are opening up--take China, for example. Many new institutions are executing derivative trades, in a number of instances these are due to changing regulations. ISDA is always among the first to work with regulators in new jurisdictions, complementing the work it does in more established markets.

It is also worth stressing that, while notionals are the most common measure of market size, the embedded exposure is a small fraction of the notional amount, as low as 1-2% of the notional. The benefits of netting and collateral cannot be overstated, both areas in which ISDA has devoted significant resources. One other area in which ISDA continues to focus is on the educational front, through its extensive conference program and through the work it does with regulators and other policy makers.

 

DW: Why the change of job at BofA?

JM: Bank of America has committed significant investment to its global markets business this year. Whilst our presence in the U.S. is strong in most sectors, we view our international platform as having significant opportunity. Having spent eight years with the bank in the U.S., running one of the larger product groups, global liquid products, I have obviously had significant exposure to the broader Bank of America Corp. platform. I think that fact, coupled with my previous experience running a product group with an extensive global presence was important to Al De Molina, president of the global corporate and investment bank. Besides, when the president of the investment bank asks you to do something like this, it's tough to say no.

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