27.05.2011
By Simon Miller
The level of cleared interest rate swaps exceeded 50% of interest rate swap notional outstanding at the end of 2010, up from 21% at year-end 2007 according to analysis of Bank for International Settlements' and LCH.Clearnet’s SwapClear's year-end statistics.
The study by the International Swaps and Derivatives Association, also found that over the same time frame, the volume of uncleared interest rate swaps outstanding declined from $201trn (£142.1trn) to $116trn, a decrease of $85trn or 42%.
“The strong commitment of ISDA and market participants to make the OTC derivatives markets safe and efficient is evidenced by the increased use of central counterparty clearing and the continuing reduction in uncleared volumes,” said Conrad Voldstad, ISDA CEO. “Further progress in this area lies ahead as we look to expand central clearing while ensuring that the financial strength, risk standards and governance of clearinghouses remain extremely strong.”
The ISDA analysis also revealed that the level of OTC derivatives notional outstanding, excluding FX derivatives, and adjusting for the impact of clearing, declined by 12% from $475trn at year-end 2007 to $419trn at year-end 2010.
ISDA said the decline reflected the impact of the industry’s portfolio compression efforts, which has reduced notional outstanding by approximately $137trn during the three-year time span.
However, the decline in notional amount outstanding did not necessarily indicate a change in new OTC derivatives market activity, the association noted. In addition, netting and collateral reduce the gross market value of OTC derivatives transactions by 95%.
“Portfolio compression (or tear-ups) has had a significant impact on outstanding volumes as market participants look to reduce credit risk,” said Voldstad. “The industry’s collaborative work on documentation, netting and collateral is also having a major impact in reducing risk in our markets.”
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