18 September 2018

ISDA: Ten years on

Anniversaries are important. They provide an opportunity to look back on important events in the past, and consider how they shaped the present. Ten years on from the collapse of Lehman Brothers, it’s therefore natural that people think back on what happened and ask what has changed.

The answer is: quite a lot. Consider the progress made in implementing the Group-of-20 derivatives market reforms. Capital levels have increased significantly.

According to the Financial Stability Board (FSB), 19 out of the 24 FSB countries have derivatives trade reporting mandates in place. Mandatory margin requirements are also being phased in, significantly reducing the risk of losses from the default of a counterparty.

But, 10 years on from the collapse of Lehman Brothers, now’s the time to ask what’s working, what’s not and what can be made better.

ISDA has worked to highlight areas where improvements can be made, and to suggest solutions to implementation challenges. The most important is the cross-border harmonization of rule sets.

Consistency and cooperation are also important in regulatory reporting. It makes little sense for different jurisdictions to have their own reporting requirements and data formats. This needlessly increases the compliance burden for derivatives users, while reducing the ability of regulators to aggregate exposures on a global basis and spot the early signs of another financial crisis.

Another key issue is calibrating the rules to ensure they are risk-appropriate.

He concludes: “These are just a couple of the issues still outstanding. It was important that we learned the lessons from Lehman and implemented changes to ensure the financial system is more resilient. But it’s also important we learn the lessons from the past 10 years, and refine and improve the rules where necessary to ensure the derivatives market remains both safe and efficient.”

Full speech

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