ISDA®
INTERNATIONAL
SWAPS AND DERIVATIVES ASSOCIATION, INC.
NEWS RELEASE
For Immediate Release, Tuesday, October 21, 2008
For
More Information, Please Contact:
Louise
Marshall, ISDA New York, +1 212-901-6014, [email protected]
Cesaltine
Gregorio, ISDA New York, +1 212-901-6019, [email protected]
Donna
Chan, ISDA Hong Kong, +852 2200 5906, [email protected]
ISDA CEO NOTES
SUCCESS OF LEHMAN SETTLEMENT,
ADDRESSES CDS MISPERCEPTIONS
NEW YORK, Tuesday,
October 21, 2008 – Robert Pickel, Chief Executive Officer of the
International Swaps and Derivatives Association, Inc. (ISDA) today commented on
the cash settlement of CDS trades on Lehman Brothers and on certain misperceptions
in relation to the CDS industry.
The
cash settlement deadline for Lehman is today, October 21. Based on industry
estimates, a total of $6bn to $8bn is expected to have changed hands by close
of business. This is approximately 1% to 2% of the $400 billion in CDS trades
referencing Lehman and does not account for the effects of collateral, which
will further reduce the payment amounts.
“Today’s
settlement demonstrates that the industry infrastructure for CDS clearly works,”
said Mr. Pickel. "ISDA and its members have developed a robust legal and
operational framework that governs and guides industry participants through defaults
and credit events, and that includes well-established procedures for
evaluating, netting and settling outstanding trades. Recent developments in the
financial markets underscore the value of the industry’s collective
efforts."
"This
is not to say that market dislocation is not having an effect on the
derivatives industry more generally,” Mr. Pickel said. “Clearly it is: many market
participants have faced major losses that have their genesis in the subprime
mortgage business. This is a concern to all of us. The events of this year must
be examined thoroughly for a better understanding of how they can be avoided
in the future."
Mr.
Pickel emphasized that the Lehman default and settlement have not created the
financial disruption that critics of the CDS business have claimed. First, because
the number of CDS trades outstanding on Lehman includes a significant number of
transactions that offset each other, settlement payments are only a fraction –
about 1% to 2% – of the approximately $400bn notional of CDS trades referencing
Lehman.
Second,
because firms are required to mark their positions to market and to post
collateral, any additional exposure arising from the cash settlement is
incrementally minimal.
And
third, despite the failure of this major dealer institution – as well as
several other large counterparties – the CDS business continues to function
effectively. CDS contracts have been consistently more liquid than their cash
market equivalents.
In
addition, Mr. Pickel points out some fundamental misperceptions about the
nature of CDS. The biggest misperception facing the CDS business in general is
its role in today’s financial crisis. The root cause of problems of the
financial sector is too many bad mortgage loans. While many of the loans were
structured into mortgage backed securities (MBS) or were repackaged as
collateralized debt obligations (CDOs) and sold to investors around the globe, no
individual product or instrument was at fault; the economic fundamentals of
those underlying exposures were simply not sustainable.
Mr.
Pickel emphasized that CDS, like other privately negotiated derivatives, are
bilateral, privately negotiated contracts between counterparties. The business
is conducted within a sound policy framework established by policymakers, supervisors,
and legislators that retains a great degree of market discipline to guide the
conduct of swaps participants. Within that framework, CDS trading is subject to
extensive regulatory oversight, risk management controls, corporate governance
and financial reporting requirements.
“As we
move forward, global public policymakers have signaled their intent to review
and restructure the global regulatory framework for financial institutions and
financial instruments,” said Mr. Pickel. “The industry welcomes this
discussion, and we believe it will provide a forum for explaining and
understanding the important benefits that privately negotiated derivatives
offer to industry participants around the world. The CDS market continues to
operate efficiently and the ISDA framework on which the CDS market arranges
settlement of trades is providing legal and operational certainty for the
industry in a time of economic uncertainty.”
About ISDA
ISDA,
which represents participants in the privately negotiated derivatives industry,
is among the world’s largest global financial trade associations as measured by
number of member firms. ISDA was chartered in 1985, and today has approximately
850 member institutions from 56 countries on six continents. These members
include most of the world’s major institutions that deal in privately
negotiated derivatives, as well as many of the businesses, governmental
entities and other end users that rely on over-the-counter derivatives to
manage efficiently the financial market risks inherent in their core economic
activities. Information about ISDA and its activities is available on the
Association's web site: www.isda.org.
®ISDA is a registered trademark of the
International Swaps & Derivatives Association, Inc.
http://www.isda.org/
-----------------------------------------------------------------------------------------------
LATIMES
3:45 PM, October 21, 2008
Sellers and buyers of credit default swaps on Lehman Bros. Holdings Inc. debt settled up today, and the financial system seemed no more worse for the wear and tear.
There has been an undercurrent of fear in markets in recent weeks
that some sellers of swaps (a form of insurance) on debt of bankrupt
Lehman would be unable to make good on their commitments to the swap
buyers, triggering a new cascade of financial trouble. An estimated $6
billion to $8 billion was supposed to change hands at settlement.
In a statement, the International Swaps and Derivatives Assn.
declared the settlement a "success," and said Lehman's default and the
workout of related swap transactions "have not created the financial disruption that critics of the credit default swap business have claimed."
That's what we'd expect the ISDA to say,
of course. They're looking out for their livelihood, amid a deepened
public mistrust of derivative securities and the potential threat they
pose to the financial system.
It's still not clear to me that we won't
hear about some hedge fund or other market player being unable to make
good on a Lehman swap payment. But if a huge calamity was brewing,
you'd figure we'd know by now.
In the meantime, read Reuters' take on the settlement here, and a piece by MarketWatch.com here. The ISDA statement, which does include some helpful explanation, is here (click on the entry "ISDA CEO Notes Success of Lehman ... ").
http://latimesblogs.latimes.com/money_co/2008/10/sellers-and-buy.html
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发表于 2008-10-21 09:23 PM
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