By Ted Howard
But concerns over price and ease of using OTC derivatives remain a concern.
The burdens and the prices may be higher but regulation implemented since the financial crisis has made for safer markets, according to results of a survey by the International Swaps and Derivatives Association.
So despite the years of bitter fighting over regulations and a rough, drawn out implementation of some of those new rules, nearly 60 percent of respondents in ISDA’s survey felt that the financial system today “is on a sounder footing than before the financial crisis.”
When asked to rank the importance of several factors contributing to the stability of the market, most respondents felt tighter credit risk management; capital requirements and a reduction of leverage were more “important” than “very important.” Asked which of the top three were “very important” 31.4 percent said tighter credit risk management. About 44 percent felt margin/collateral requirements were “important” while only about 17 percent felt they were “very important.”
But despite the good feelings about the soundness of the market, respondents also indicated there will be a price to pay. That’s because reforms like electronic trade execution requirements for OTC derivatives will have a negative impact on hedging (53.46 percent), price (38.71 percent) and liquidity (36.11 percent). And when asked how reforms have an impact on how their companies hedge, more than 80 percent said administrative burdens related to hedging have increased.
Another concern is the differing rules in different countries and regions. Several market participants as well as some regulators, like Scott O’Malia at the Commodity Futures Trading Commission, worry about regulatory arbitrage, level playing fields, and who is the lead supervisor of cross-border groups.
ISDA polled 245 of mostly non-financial corporates, financial institutions and asset managers in February and early March.