Thirty years ago, 10 bankers got together, pooled their firms’ funds, hired a lawyer, and set in motion one of the great stories of modern finance.
They formed ISDA, which, in turn, helped form an important new global financial market that forever changed how risk is measured, managed and mitigated.
It started with documentation that standardised contract terms and enabled firms to net (and thereby reduce) their exposures to each other. It spread to advocating for policies that ensured the enforceability of netting. It later included working to gain recognition of the risk-reducing benefits of netting in global capital requirements.
In these and many other ways, ISDA represented the growing needs of a growing market and a growing number of market participants. As a result, ISDA itself became one of the world’s largest financial trade associations, with more than 800 member institutions in 67 countries, and with seven offices in six countries.
Today, the global derivatives market and ISDA are much changed compared to 1985. But in one important respect, 2015 seems eerily similar. There is a sense that we are at the beginning of something new. Yes, the view is still a bit blurry. We’re not quite sure what is taking shape, but we can see the outline forming.
This much, however, we do know. Most importantly, firms around the world want and need derivatives to manage their risks. Corporates, sovereigns, asset managers, funds, large and small banks, energy companies, you name it—all of them depend on customised financial instruments to hedge their exposures.
We also know the market structure for derivatives has fundamentally changed – and that it will continue to evolve. Some 75% of the interest rates derivatives market is now cleared. Virtually every derivatives trade is reported to a repository. Margin requirements are coming on stream for non-cleared transactions.
Given this fundamental need for derivatives, as well as the fundamental changes in how they are treated and traded, we also know that ISDA’s mission and work remain vitally important. There is critical work to be done in every area of the market—from capital requirements to collateral rules, from electronic trading to market education.
So we are pleased and proud to launch, in our 30th year, a new publication that will highlight the challenges and opportunities in the dynamic and global derivatives market. IQ: ISDA Quarterly will chronicle the never-ending story of this market and the work that ISDA does in representing it. You will find in every issue an interesting mix of features, interviews and research presented in what we hope is an attractive and accessible format.
Thanks for your interest in ISDA and IQ: ISDA Quarterly.■
Global Head of Public Policy