Dispelling Myths: End-User Activity in OTC Derivatives

There is a perception among some commentators that only a small fraction of derivatives activity relates to hedging that benefits the ‘real economy’. This analysis challenges that assumption. Publicly available data published by the Bank for International Settlements reveals that 65% of over-the-counter interest rate derivatives market turnover involves an end user on one side and a reporting dealer on the other. These participants, comprising non- dealer financial institutions and non-financial customers, use derivatives primarily to hedge risks and reduce volatility on their balance sheets.

The remaining 35% of derivatives turnover activity relates to dealer market-making and the hedging of customer transactions – vital for market liquidity and the facilitation of client trades. Without this, end users would be unable to put on risk-reducing and cost-effective hedges, potentially leading to less hedging and more balance-sheet volatility.

Documents (1) for Dispelling Myths: End-User Activity in OTC Derivatives

ISDA/IIB/SIFMA request to extend 22-14

This joint ISDA/IIB/SIFMA letter requests reporting relief for certain non-US swap dealers in Australia, Canada, the European Union, Japan, Switzerland or the United Kingdom with respect to their swaps with non-US persons.  The joint trade association letter, submitted to CFTC...

A Positive Step to Improve the FRTB in the EU

As the Basel III capital reforms are finalized for implementation in key jurisdictions, ISDA is maintaining a laser focus on making sure the rules are robust and risk-appropriate. Simply put, if capital requirements are set disproportionately high, this will have...