Retrospective 2008-2009 Master

2009 ISDA

®

International Swaps and Derivatives Association, Inc.

COVER.indd 1

4/7/09 4:15:08 PM

ISDA 2009 ®

A Yearbook of ISDA Activities

International Swaps and Derivatives Association, Inc.

ISDA 2009.indd 1

4/8/09 9:57:03 AM

OFFICES NEW YORK 360 Madison Avenue 16th Floor New York, NY 10017 Phone: (212) 901-6000 Fax: (212) 901-6001 LONDON One Bishops Square London E1 6AD United Kingdom Phone: + 44 (0) 20 3088 - 3550 Fax: + 44 (0) 20 3088 - 3555 HONG KONG Suite 1502 Wheelock House 20 Pedder Street Central, Hong Kong Phone: +852 2200 5900 Fax: +852 2840 0105 SINGAPORE 24 Raffles Place #24-02A Clifford Centre Singapore 048621 Phone: +65-6538-3879 Fax: +65-6538-6942 TOKYO Shiroyama Trust Tower 31st Floor 4-3-1 Toranomon Minato-ku, Tokyo 105-6031 Phone: (813) 5733-5500 Fax: (813) 5733-5501 WASHINGTON 1101 Pennsylvania Avenue Suite 600 Washington, DC 20004 Phone: (202) 756-2980 Fax: (202) 756-0271 BRUSSELS Rue Wiertz 50/28 B-1050 Brussels Tel: (322) 401 87 60 Fax: (322) 401 68 68

ii

ISDA 2009.indd 2

4/8/09 9:57:03 AM

TABLE OF CONTENTS

FOREWORD

1

DOCUMENTATION PROJECTS SUMMARY

6

PRODUCTS & USERS CDS Hardwiring Interest Rates Natural Catastrophe Swaps Derivatives Users Committee Equity Derivatives Energy, Commodities & Developing Products Japan Property Derivatives

11 11 13 15 16 17 19 20

INFRASTRUCTURE Portfolio Compression & Market Practice Changes Collateral Operational Scalability FpML

21 21 23 25 27

SUPERVISION Accounting Fair Value Accounting EU Savings Tax Directive Financial Law Reform Public Policy - US Public Policy - EU Public Policy - EMEA Emerging Markets Public Policy - APAC Public Policy - Japan

29 29 31 32 33 35 37 39 41 43

EDUCATION & OUTREACH Research Membership

45 45 48

Current Members ISDA Conferences & Events 2008

50 59

iii

ISDA 2009.indd 3

4/8/09 9:57:03 AM

INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC. 2009 BOARD OF DIRECTORS Officers Eraj Shirvani, Chairman Managing Director, Head of Fixed Income for EMEA Region Credit Suisse

Michele Faissola, Vice Chairman Managing Director and Global Head of Rates, Global Markets Division Deutsche Bank

Diane Genova, Treasurer Managing Director and General Counsel, Investment Bank J.P. Morgan Chase & Company

Directors Thibaut de Roux Global Head of Structured Rates and Equity Products HSBC Bank plc

Ted MacDonald Managing Director and Treasurer The D. E. Shaw group

Nitin Gulabani Global Head of Rates Standard Chartered Bank

Stephen O’Connor Managing Director Morgan Stanley

George Handjinicolaou Deputy CEO ISDA

Robert Pickel Chief Executive Officer ISDA

Alan Haywood Head of Oil Supply & Trading BP OIL International

Bill Powers Managing Director PIMCO

Peter Healey Managing Director UBS Investment Bank

Riccardo Rebonato Global Head of GBM Market Risk and Head Analytics Royal Bank of Scotland

Frédéric Janbon Global Head of Fixed Income BNP Paribas

Thomas Riggs Managing Director Goldman Sachs

Dixit Joshi Managing Director: Head of Equities, EMEA and Asia Pacific Barclays Capital

Gerhard Seebacher Managing Director, Head of Global Credit Products Bank of America

Pierre-Emmanuel Juillard Head of Structured Finance Division AXA Investment Managers

Atsushi Takahashi General Manager of Derivative Products Division Mizuho Corporate Bank, Ltd.

Sotaro Kato Managing Director, Co-Head of Fixed Income Division Nomura Securities International, Inc

Lili Wang Senior Executive Vice President ICBC Ltd.





Eric Litvack Managing Director, Global COO Volatility Trading Société Générale



ISDA 2009.indd 4

4/8/09 9:57:03 AM

FOREWORD

As you are well aware, 2008 was a year of significant turmoil and volatility in the global financial markets. Over-extension of, and over-exposure to, subprime credit significantly eroded capital and confidence in the financial industry. Changes within the industry—in terms of mergers, acquisitions and failures—occurred at a scope and scale that can only be described as historic. Through it all, how has the privately negotiated derivatives business fared? The answer to this question comes in two parts. The first is that the derivatives business—and in particular the credit default swaps business—functioned very effectively during extremely difficult market conditions. CDS have proven to be the main (and sometimes only) way for industry participants to shed risk or express a credit market view. In addition, CDS contracts have been consistently more liquid than their cash equivalents. While many cash, securities and money markets seized up, the CDS business continued to operate. Of particular note is how well the CDS business performed in relation to the several large defaults that occurred in the span of just a few weeks last autumn. We can take great pride knowing that the significant amount of time and energy that ISDA and the industry expended to build a robust, resilient infrastructure has clearly been worth the effort. Default and settlement processes were handled efficiently. In addition, the actual amounts exchanged upon settlement—and the risks of the relevant CDS positions—were far below reported projections. Figures are available from the Depository Trust & Clearing Corporation’s Trade Information Warehouse. The second part of the story, however, is more trying for the industry. Clearly, there is a great deal of misunderstanding and misperception regarding the role and benefits of CDS. Our focus as the industry standard-bearer is to address and counter these inaccuracies. For the past 25 years, ISDA has worked to improve the efficiency and transparency of the bilateral derivatives business, with continued standardization of documentation, promotion of sound risk management practices and education of the marketplace. ISDA’s robust legal and operational infrastructure provides certainty for the derivatives industry in a

1

ISDA 2009.indd 1

4/8/09 9:57:03 AM

time of economic volatility. To name but a few of our initiatives: we work with regulators, legislators and the media to strengthen the operational infrastructure for and understanding of OTC derivatives that guides market participants through defaults and credit events. We organize global conferences to promote awareness of industry commitments on operational matters. We publish Master Confirmation Agreements to harmonize equity derivative transaction and trade processing. Recent developments in the financial markets underscore the value of ISDA and the industry’s collective efforts. Together with its members and other industry groups, ISDA has worked extensively with a New York Fed-led group of regulators to improve derivative market processing and scalability, as well as augment risk mitigation and transparency. One of ISDA’s key initiatives in 2009 is the completion of a successful cash settlement auctionbased mechanism, a process which has been commonly referred to as “hardwiring”. Working side-by-side with ISDA’s protocol amendment process, the auction mechanism played an important role in providing market participants an efficient and reliable settlement process through major credit events in 2008. The incorporation of auction settlement terms into standard CDS documentation was commended by the Senior Supervisors Group of regulators and separately by the New York Fed. ISDA works closely with the industry to improve the OTC processing environment by significantly reducing systemic risk and increasing transparency. The Association continues to support initiatives and platforms that operate to eliminate economically redundant trades through portfolio compression and tear-ups. The success of ISDA’s CDS settlement auctions and other strategic steps that ISDA is making towards operational efficiency clearly demonstrate that the industry infrastructure for CDS works.

2008 Year in Review As we entered 2008, we did so with new leadership. At the Association’s 23rd Annual General Meeting, ISDA welcomed Eraj Shirvani, Managing Director, Head of European and Pacific Credit Sales and Trading at Credit Suisse, as its new Chairman. ISDA was very pleased to have Eraj take on this role to help lead ISDA through the fresh challenges and opportunities ahead.

2

ISDA 2009.indd 2

4/8/09 9:57:03 AM

Eraj replaced Jonathan Moulds, President, Europe, Middle East, Africa (EMEA) and Asia, Bank of America, who had served as ISDA Chairman since November 2004. We at ISDA deeply appreciate Jonathan’s leadership and his efforts on behalf of the derivatives industry over the years. The past year posed a range of challenging issues for the Association that demonstrated the commitment of ISDA members, Board and staff around the world. During 2008, ISDA added 100 new members, bringing our total membership to over 820 firms from 57 countries on six continents. The breadth and scope of ISDA’s membership, coupled with the expertise and talent its members bring to industry issues, are largely responsible for our continuing success in representing the global derivatives business. As ISDA’s Mid-Year 2008 Market Survey highlighted, the derivatives business overall showed consistent growth over the first half of 2008. However, the industry began to see a downturn in the notional volumes of credit derivatives—the total amount of trades that are outstanding. This decrease primarily reflects the industry’s efforts to reduce risk by tearing up economically offsetting transactions, and demonstrates the industry’s ongoing commitment to reduce risk and enhance operational efficiency. ISDA remains focused on building a strong operational infrastructure to support the continued growth in this important market. The results of this year’s Operations Benchmarking Survey are of particular interest because of increased attention to such issues from the industry and policy makers. According to the Survey, post-trade processing has kept pace with industry growth and in many cases improved over the years. In the area of documentation, we published a revised version of the (single-name) Standard Terms Supplement for Use with Credit Derivative Transactions on Leveraged Loans. This template has been updated to include auction settlement on the same terms as the index version, providing consistency for those entering into single-name loan CDS trades on reference obligations that are listed in the index. The Collateral Committee worked closely with major dealers to identify improvements in collateral management, including portfolio-reconciliation best practices. The Committee continued facilitating the use of collateral amongst industry participants, particularly outside of the US. In Europe, ISDA proposed harmonization of netting laws and in Japan, the 1995 ISDA Credit Support Annex was revised to reflect changes in legislation.

3

ISDA 2009.indd 3

4/8/09 9:57:04 AM

Our 2008 Margin Survey reflected the continued importance of collateralization as a risk mitigation tool and the effectiveness of collateral agreements. The Survey estimated that the collateral in circulation was $2.1 trillion, a 60% increase over 2007. The Survey also reported that collateral agreements in place grew to over 149,000, an 18% increase from 2007. Year in and year out, ISDA increases the number of netting and collateral opinions in response to the needs of our members. ISDA currently has 53 netting and 43 collateral opinions, for a total of 96 opinions. We have a steady pipeline of requests for new opinions. In 2008, ISDA participated in extensive discussions with various groups on risk management practices. ISDA endorsed the President’s Working Group on Financial Markets’ (PWG) call for the adoption of best practices with respect to risk management for OTC derivatives activities, including public reporting, liquidity management, senior management oversight and counterparty credit risk management. PWG’s initiatives also include the use of legally-enforceable netting and collateral agreements between counterparties where possible. Additionally, ISDA, the International Association of Credit Portfolio Managers (IACPM), the Risk Management Association (RMA) and McKinsey & Company conducted the Survey on Credit Portfolio Practices. The industry’s interest in the Survey reinforces the importance of strengthening the portfolio management function during a credit crisis. Throughout the year, ISDA continued to broaden our educational efforts and reach to industry participants around the world. We launched ISDA ON DEMAND®, an online service that enables industry participants to access the Association’s conference programs over the Internet at their convenience. ISDA ON DEMAND is the only source for e-learning that provides participants with the relevant ISDA training and educational materials. 2008 was another year of growth for ISDA conferences. In all, ISDA held 143 events throughout 2008. These include our Regional Member Conferences in Sydney, Hong Kong and Tokyo, and symposiums and training courses on subjects that ranged from risk management and new types and uses of derivatives to the latest developments across the industry. The Association’s 2008 Annual General Meeting in Vienna, Austria, which featured leading speakers from the industry, government and academia, was well attended. ISDA’s April 2009 AGM in Beijing, China will again bring together key players to consider the important role that derivatives play in the global economy.

4

ISDA 2009.indd 4

4/8/09 9:57:04 AM

Looking Ahead There’s no question that the turmoil in the global financial markets has brought significant challenges to the privately negotiated derivatives business. We pledge to operate as efficiently and effectively as possible so that our members realize the maximum value for their contributions to the Association. Initiatives to reduce or eliminate unnecessary expenses are well underway. I thank you for your continued involvement in the many initiatives of our Association. With your support, ISDA will continue to work to fulfill its mission and bring significant value to our industry and our members. Sincerely,

Robert Pickel Executive Director and Chief Executive Officer

5

ISDA 2009.indd 5

4/8/09 9:57:04 AM

Documentation Projects Summary Key Achievements of 2008, Highlights for 2009 In the challenging macro financial market environment of 2008, the derivatives industry continued to function well and provide important risk management avenues for market participants. Against this backdrop, a series of high profile corporations failed and along with that came a number of significant credit events for ISDA and its members to address. The mechanisms to deal with these events functioned smoothly and successfully and, contrary to the expectations of some pundits, settlements were completed efficiently and in smaller amounts than some sensationalized reports indicated.

Credit Derivatives ISDA conducted 13 settlement auctions over the course of 2008, relating to 8 CDS protocols, notably including Lehman Brothers, Fannie Mae and Freddie Mac, Washington Mutual and the first Europeanbased credit event-driven protocols for three Icelandic banks. Each of these auctions was conducted as seamlessly as those that had preceded them since 2005.

A major part of any credit event process going forward will be the hardwiring of the settlement protocol process, which facilitates the cash settlement of CDS following a credit event, but which eliminates the need for individual protocols. This was a major focus in the latter part of 2008 and is perhaps the single documentation effort to which the Association and its members are currently devoting the most attention and resources. Hardwiring for new trades is detailed in the Auction Settlement Supplement to the ISDA Credit Derivatives Definitions. In order to bring existing trades under the same terms, the Big Bang Protocol lets participants amend trades multilaterally with all other adhering counterparties.

Other key credit derivative projects completed in 2008 include European LCDS, and North American CDS and LCDS documentation. ISDA expects to revisit its Credit Derivatives Definitions to incorporate these and other changes in 2009.

6

ISDA 2009.indd 6

4/8/09 9:57:04 AM

Close-out Protocol and Netting The 2009 Close-out Protocol allows firms to agree multilaterally to amend the terms of their documentation so that in the event of a counterparty failure, the agreed method of determining prices is by CloseOut Amount. This is a flexible means for market participants to establish reasonable prices by consulting a range of sources.

In Asia, working toward Close-out Netting for China will be a major focus for the Association, including proposed amendments to China’s Bankruptcy Act, as well as continued work with regulators on a unified Master Agreement for onshore derivatives trades. Ongoing work on Close-out Netting for Malaysia will also continue to be a significant aspect of ISDA’s work in the region.

Equity Derivatives The AEJ (Asia Ex-Japan) Master Equity Confirmation Agreement, published in August 2008, contains the following annexes: EFS Annex, which documents cash-settled equity finance share swaps; the Multiple Exchange Index Annex; and an Open Market Annex OMISO, which documents cash and physically-settled European and American style index and share options. All of the annexes to this agreement reference underlying shares or indices in Australia, Hong Kong, New Zealand or Singapore.

Revised Additional Provisions for Use with Indian Underliers were published in November, making changes to the original version published in 2005. The changes take into account amendments made to the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations from May.

The 2008 Japanese Master Equity Derivatives Confirmation Agreement is designed to document cashsettled index option transactions, and cash or physically-settled share option transactions. The 2008 Japanese Dividend Swap Master Confirmation Agreement (Annex IDS) documents index dividend swap transactions, and is ISDA’s first dividend swap agreement.

The 2008 Americas Master Designated/Exchange-Traded Contract Option Confirmation Agreement, published in March, is intended to document physically-settled share option transactions and cash-set-

7

ISDA 2009.indd 7

4/8/09 9:57:04 AM

tled index option transactions on US underliers.

For 2009, ISDA is working on documentation projects to standardize interdealer share and index swap documentation for Asia ex-Japan, Europe and Japan, as well as emerging market options documentation for AEJ closed markets and emerging Europe. Also, we expect to publish share basket and index basket option documentation for each equity region.

Interest Rate Derivatives In 2008, along with the publication of numerous Floating Rate Options, including OIS based Floating Rate Options, ISDA published a confirmation template for CMS One Look Transactions as well as standard language addressing Deliverable Currency Disruptions. ISDA is working with members to revise the Deliverable Currency Disruption Fallback Matrix to increase the number of currencies covered.

ISDA will be introducing a standardized biannual process to incorporate new Floating Rate Options in 2009.

Energy, Commodities and Developing Products ISDA will be working with members to update the Commodity Reference Price sections of the 2005 ISDA Commodity Definitions as well as expanding the suite of templates for weather transactions. Also ongoing is the expansion of products covered by the ISDA US Emissions Annex.

For the ISDA Global Physical Coal Annex, an updated version of the draft confirmation template is underway. In relation to the ISDA US Crude Oil & Refined Products Annex, a draft addendum for Canadian transactions is currently under review by local counsel.

The Catastrophe Swap Working Group is finalizing a Wind Event Confirmation for use with the 2006 Definitions. Further natural catastrophe swap documentation compatible with the ISDA framework is contemplated.

8

ISDA 2009.indd 8

4/8/09 9:57:04 AM

Other Areas The final draft of the widely anticipated Islamic version of the ISDA Master Agreement (ISDA/IIFM Ta’Hawwut (Hedging) Master Agreement) has been circulated to the IIFM Board of Shariah Scholars for final approval. A document of cultural and commercial significance, the Islamic Master Agreement will be the first industry standard document for the framework documentation of privately negotiated derivatives that complies with Shariah law. Once the Islamic Master Agreement is published, ISDA will start work on producing individual confirmation forms for specific product use with the framework document.

ISDA acted as an Amicus Curiae—or friend of the court—in several cases during 2008, most notably TCIF vs CSX, and will continue to provide this resource in any cases that require derivatives industry expertise and input that any arising court cases might require.

ISDA LEGAL: David Geen General Counsel [email protected]

Jing Gu Assistant General Counsel, Asia Pacific [email protected]

Katherine Darras General Counsel, Americas [email protected]

Rosario Chiarenza Counsel [email protected]

Jacqueline Low Senior Counsel, Asia Pacific [email protected]

Kirsty Devonport Counsel [email protected]

Mark New Assistant General Counsel [email protected]

9

ISDA 2009.indd 9

4/8/09 9:57:04 AM

Now playing...

...on a screen near you www.isda.org

ISDA 2009.indd 10

4/8/09 9:57:04 AM

Products & Users

Products & Users

CDS Hardwiring

I

n March 2009, ISDA launched its Auction Settlement Supplement and Protocol, the final stage of the process known as “hardwiring.” This incorporates auction settlement terms into standard CDS documentation, and has been welcomed by the Senior Supervisors Group of regulators as well as

by the New York Fed as a tool to reduce uncertainty and make credit event management more operationally efficient.

The event is a milestone in the ongoing refine-

and commitment that both buy-side and sell-side

ment of practices and processes for the efficient,

participants and the regulatory community have

liquid and transparent conduct of the CDS busi-

invested in this process. Key attributes include:

ness. Hardwiring is central to the many improve-

incorporation into the standard documentation

ments ISDA and the industry are making to the

of Auction Settlement provisions that eliminate

CDS contract, to further ensure that infrastruc-

the need for credit event protocols; Resolutions

ture and standards for these important risk man-

of the Determinations Committees, comprising

agement instruments are straightforward, secure

dealer and buy-side representatives to deter-

and widely implemented.

mine, for example, whether credit events have taken place; Credit and Succession Event Back-

In recognizing the benefits hardwiring will bring,

stop Dates that institute a common standard ef-

we must also recognize the insight, hard work

fective date for CDS trades.

11

ISDA 2009.indd 11

4/8/09 9:57:05 AM

In combination with the changes in market practice that support standard coupons for CDS, these developments will introduce greater certainty to transactional, operational and risk considerations for treatment of CDS.

CONTACT: David Geen General Counsel [email protected] Mark New Assistant General Counsel [email protected] Kirsty Devonport Counsel [email protected]

Source: Markit Quarterly Trend Report, December 2008

12

ISDA 2009.indd 12

4/8/09 9:57:05 AM

Products & Users

Products & Users

Interest Rates

W

orking in conjunction with Association members, ISDA’s legal and documentation activities in the Interest Rate and Currency Derivatives space covered a range of issues and regions. We would like to highlight a few of our new publications and how they further the

derivative industry’s objectives.

Additional Provisions For Use With a Deliverable

together under the auspices of ISDA, to proac-

Currency Disruption (Additional Provisions) and

tively tackle issues that could lead to operational

ISDA Deliverable Currency Disruption Fallback

inefficiencies if left unaddressed.

Matrix (Fallback Matrix), were published by ISDA in November. These address the processing of

Responding to member feedback, and in coordi-

a payment stream denominated in a currency

nation with the Interest Rate Operations Working

that at the inception of a transaction was convert-

Group, ISDA published numerous supplements

ible but has subsequently become inconvertible.

to the 2006 ISDA Definitions during 2008. One

ISDA is working with Association members to

key development was Exhibit II-J, Additional Pro-

increase the number of currencies covered by

visions for a Confirmation of a Constant Maturity

the Additional Provisions and Fallback Matrix on

Swaps One Look Transaction. This template il-

a continuing basis. These documents exemplify

lustrates ISDA’s continuing efforts to reduce doc-

the commitment of market participants, working

umentation risk—a core ISDA objective—by pub-

13

ISDA 2009.indd 13

4/8/09 9:57:06 AM

lishing standard transaction confirmations. ISDA will continue to work closely with market participants to identify suitable transactions for standard confirmation templates.

The 2008 Inflation Definitions also reflects ISDA’s global reach and commitment to standardization. Drawing comments from five continents, the Inflation Definitions greatly expanded the list of available Index Descriptions. This expanded menu promotes the standardization of inflation trades, by allowing parties to reference a defined index as opposed to bilaterally defining an index.

CONTACT: Rosario Chiarenza Counsel [email protected]

Source: Markit Quarterly Trend Report, December 2008

14

ISDA 2009.indd 14

4/8/09 9:57:06 AM

Products & Users

Products & Users

Natural Catastrophe Swaps

R

apid product innovation and standardization of product documentation are hallmarks of the over-the-counter derivatives industry. At last year’s Annual General Meeting in Vienna, Natural Catastrophe Swaps, particularly US Wind Event and US Earthquake Event Swaps, were

identified as important developing products. Documentation for many of these products begins as bespoke derivatives contracts and as the market matures, ISDA works with Association members to forge standard confirmations.

Drawing Association members from a wide range

At the time of publication, the US Wind Event Con-

of backgrounds—for example, re-insurers, deal-

firmation was due for finalization. The US Wind

ers and end-users—ISDA formed the Catastro-

Event Confirmation project is a fine illustration

phe Swap Working Group to begin working on

of how Association members, working through

standardization. The working group decided to

ISDA, can transform a relatively bespoke, illiq-

concentrate efforts on developing a standard

uid product into a commoditized, liquid product.

US Wind Event confirmation and then expand to

Building on the success of the Working Group,

other Natural Catastrophe products.

ISDA plans to tackle other Natural Catastrophe Swaps, including US Earthquake Event confir-

Among the many key points addressed by the

mations, in the near term.

Working Group was the length of the period to determine the occurrence of a loss trigger event

CONTACT:

(called the US Wind Event), and appropriate ex-

Rosario Chiarenza Counsel [email protected]

tension thresholds. The group has provided a menu of possible US Wind Event terms, allowing for greater customization of the swap, while still benefitting from standardized documentation.

15

ISDA 2009.indd 15

4/8/09 9:57:06 AM

Products & Users

Derivatives users committee

I

t is the impetus of customer trades that determines not just where prices go, but which types of contracts develop. With that in mind, the Derivatives Users Committee remains a vital part of ISDA’s engagement with the full range of participants in privately negotiated derivative contracts.

ISDA has long recognized the importance of the

part of the “hardwiring” of new settlement proce-

buy side in its membership structure, with the

dures in credit derivatives.

“Subscriber” category constituting a healthy third of the total number of member firms. But the As-

While these moves clearly underline the role of

sociation went a step further in 2008, adding three

investment firms in OTC derivatives, ISDA will

new buy-side positions at Board level, to diversify

continue to seek out the views of all constituen-

member representation at senior levels, and to

cies within the end-customer base. The use of

better serve the needs of all ISDA members.

interest rate swaps and currency derivatives con-

The three new Board members are:

tinues to grow and, with government deficits ris-

•P  ierre-Emmanuel Juillard, Head (and founder)

ing, the many national debt management offices

of Structured Finance Division, AXA Investment

in ISDA’s membership appear likely to become

Managers

more active.

•T  ed MacDonald, Managing Director, DE Shaw group •B  ill Powers, Managing Director and Member, PIMCO Investment Committee.

CONTACT: Richard Metcalfe Global Head of Policy [email protected]

Separately, the Association has recognised the end-user contribution to market practice, in the structure of the Determinations Committee that is

16

ISDA 2009.indd 16

4/8/09 9:57:06 AM

Products & Users

Products & Users

Equity Derivatives

I

n 2009, ISDA is focusing on standardizing equity derivatives documentation to facilitate electronic trade processing. ISDA has committed, in various regulatory submissions, to assisting the industry in its move to electronic trade processing by standardizing the underlying trade documentation. The

current industry commitments for new master confirmation agreements are to be completed by the end of June 2009.

For Emerging Markets, we are developing stan-

est possible degree of uniformity of approach,

dard option terms for transactions referencing

which in turn assists processing and automation.

Emerging European and Asia Closed Market shares and indices. We are also developing stan-

Once the June 2009 documentation suite is com-

dard basket option language for generic use in

pleted, future projects will be selected according

the four equity regions (US, Europe, Asia ex-Ja-

to product volume metrics for non-electronically

pan and Japan) as well as substitution language

eligible transactions. One factor in considering a

for use when an extraordinary corporate event

new project will be whether standardization of its

occurs. We are completing documentation for the

documentation will facilitate electronic trade pro-

interdealer discrete swap business for all regions.

cessing. ISDA has also committed to an update of

ISDA remains committed to consistency of lan-

the 2002 Equity Derivatives Definitions in 2010.

guage among regions in order to attain the great-

17

ISDA 2009.indd 17

4/8/09 9:57:07 AM

ISDA continues to sponsor efficient amendments to industry standard documentation via the protocol process. In February of 2008, ISDA launched the AEJ Equity Protocol. This protocol is multi-functional: it amends existing trade documentation to provide technical amendments to settlement provisions; it updates the Additional Representations for use with Indian Underliers; and provides a new market standard for variance swap market disruption events.

In addition, the Committee continues to be involved in discussions with regulators in both the UK as well as in Australia regarding the inappropriate disclosure requirements of cash-settled OTC derivatives as though they were physical positions in shares. CONTACT: Katherine Darras General Counsel, Americas, Head of Equity, FX and Interest Rates Legal [email protected]

Source: Markit Quarterly Trend Report, December 2008

18

ISDA 2009.indd 18

4/8/09 9:57:08 AM

Products & Users

Products & Users

Energy, Commodities & Developing Products

A

number of documentation projects are currently underway in the area of energy, commodities and developing products. In the area of transactions in natural catastrophe and weather derivatives (see article on Natural Catastrophe Swaps), an ISDA confirmation template for

US wind events will be finalized in early spring. The existing suite of confirmation templates for weather index transactions has been expanded to include critical cooling and heating degree days, plus total precipitation.

In physical oil trading, the Canadian Addendum to

develop an additional form to cover transactions

the ISDA US Oil Annex will be finalized in spring

into non-EU registries, mainly Switzerland, Japan,

to form the ISDA North American Oil Annex. Pre-

Australia and New Zealand. The new template,

publication drafts of the confirmation templates

to be circulated in April, will include language

to the ISDA Global Physical Coal Annex for for-

for operational provisions that are common to all

ward and option transactions were circulated in

national registries under the UN Kyoto Protocol,

March.

plus country-specific sub-annexes to cover any domestic exceptions. The existing ISDA US Emis-

Trading emissions allowances is another focus

sions Annex has been revised to include carbon

for 2009. Based on the ISDA form for emissions

allowance transactions under regional trading

transactions in the EU trading scheme, ISDA will

schemes currently operational, such as RGGI.

19

ISDA 2009.indd 19

4/8/09 9:57:08 AM

An increase in the number of Continental trad-

dardized language for letters of credit are also to

ing hubs covered by ISDA European Gas Annex

be addressed in 2009, and a project to develop

for physical gas trading is targeted. ISDA is in

ISDA templates for commodity index transac-

touch with NAESB about the effects of changes

tions is now underway.

proposed by NAESB on the ISDA North Ameri-

CONTACT:

can Gas Annex, and the need to develop supple-

Peter Werner Policy Director [email protected]

mental ISDA language to that effect. Updating the ISDA Energy Bridge and developing stan-

Japan Property Derivatives

A

mid increasing interest, the Japan Property Derivatives Working Group was formed to discuss the development of the market. It is important for there to be high-quality indices on which participants feel comfortable to trade, and the Working Group discussed require-

ments for property indices for derivatives transactions. Indices sponsored by IPD and Association for Real Estate Securitization (ARES) were deemed most suitable. ARES’s index was included in the Annex A of the 2007 ISDA Property Index Derivatives Definitions published in July 2008.

Documentation is another important element

fied in Article 35. It is still unclear, however,

for the growth of the market. The Japan Prop-

whether banks can enter into property index

erty Derivatives Documentation Task Force

derivatives under the Banking Act. Regulators

was formed to prepare and amend the confir-

indicated concerns on the impact on the finan-

mation template for Japanese property index

cial strength of banks, as well as the sound-

derivatives.

ness of property indices. ISDA will continue dialogues with the FSA for cross-regulatory

Under the Financial Instruments and Exchange Act (FIEA), property index derivatives would be considered as “any other business incidental to the financial instrument business”, as speci-

clarifications. CONTACT: Tomoko Morita Policy Director & Head of Tokyo Office [email protected]

20

ISDA 2009.indd 20

4/8/09 9:57:08 AM

Infrastructure

Infrastructure

Portfolio Compression & Market Practice Changes

I

SDA and the industry continue in our efforts to strengthen the overall infrastructure of the financial markets, particularly the credit derivatives market. One such effort, portfolio compression, has focused on the continued rapid growth in trade volumes and ways to reduce the number of trades

outstanding without modifying the overall risk between parties or the resulting cash flows.

Portfolio compression allows for a reduction in

ing is lowered which allows for increased capi-

outstanding trade count and gross notional by

tal efficiency—firms can set aside less capital for

replacing portfolios of existing bilateral trades

their CDS positions while maintaining the same

which have the same reference entity, restruc-

risk profile and cash flows across all counterpar-

turing basis and maturity with two trades of the

ties. Depending on how the limits are set, the risk

same reference entity, restructuring basis and

profile with a specific counterparty might change,

maturity.

if participants allow for that change.

The reduced trade count reduces operational risk

Following a selection process under the guid-

at the time of a credit event, as there are fewer

ance of the ISDA Credit Steering Committee,

trades to settle. Efficiency is also enhanced as

Markit Partners and Creditex were chosen to do

a result of there being fewer trades to maintain

the initial rounds of portfolio compression for sin-

and make payments on. Gross notional outstand-

gle name trades. These started in August 2008

21

ISDA 2009.indd 21

4/8/09 9:57:08 AM

and have continued into 2009 on a frequent basis

Modified Restructuring credit event, although it

for both North American and European reference

will continue to be available for those parties that

entities. In addition to the work being done by

want to specifically cover this credit event. These

Markit and Creditex, Trioptima continued its work

changes lead to a further standardization of the

on trade reductions in the index space.

market and will facilitate the implementation of a central clearing environment for CDS trades. Dis-

The success of compression both for single name

cussions are ongoing for standardization in other

and index trades explains a good portion of the

jurisdictions.

reduction in outstanding notional in 2008 from the previous year’s record. CONTACT: On April 8, 2009 the market practice for North America changed the use of fixed coupons of 100 bps and 500 bps for single name trades. In

Karel Engelen Director and Global Head, Technology Solutions [email protected]

conjunction with this, the compression algorithm changed as well for 100 bps and 500 bps fixed coupon trades. At the same time the North American market will no longer trade by default with the

22

ISDA 2009.indd 22

4/8/09 9:57:08 AM

Infrastructure

Collateral Infrastructure

T

he last year has been exceptionally productive for ISDA’s Collateral Committee, co-chaired by Michael Clarke of UBS and Shaun Sheppard of Goldman Sachs. For the first time, commitments were made to regulators in connection with collateral management. These were reflected in the

July letter issued to regulators by a group of 16 banks, and further outlined in an October follow-up. In essence, the commitments covered portfolio reconciliation, margin dispute resolution and the production of a roadmap for the collateral function. The Collateral Committee meets approximately every two weeks as an update/validation forum. Work in the collateral management area is divided across four Working Groups roughly corresponding to the regulatory commitments that have been made:

•P  ortfolio Reconciliation—this group has driven

deliver the above-mentioned roadmap in May

process improvement and uptake. All 16 firms

2009. Topics covered include the production

met the target of performing weekly (or bet-

of a best practice document, standardization,

ter) reconciliations of all intra-group portfolios

electronic communication of margin calls and

of more than 5,000 trades by the end of 2008.

interest payments, margin call time frames and

Follow-on targets, both quantitative and qualita-

central intermediation of margin calls.

tive, have been agreed upon. • Dispute Resolution—Analysis of existing meth•P  otential Industry Improvements—this group will

odologies will result by end-April in the Group’s

23

ISDA 2009.indd 23

4/8/09 9:57:08 AM

recommendation for improvements and standard methodologies in this area. • Infrastructure—this is the forum for engagement between the firms and the vendor solution providers in collateral; it will take forward the build/ enhancement requirements identified by the other groups.

CONTACT: Julian Day Head of Trading Infrastructure [email protected] Nichole Framularo Director of Trading Infrastructure [email protected] Clive Ansell Director of Trading Infrastructure [email protected] Jeffrey Kan Director of Trading Infrastructure [email protected] Anna Dunster Director of Trading Infrastructure [email protected]

24

ISDA 2009.indd 24

4/8/09 9:57:09 AM

Infrastructure

Operational Scalability Infrastructure

O

ver the past year, there has been unprecedented activity within the derivatives space. Market events have demonstrated that the operational infrastructure works well, but further improvements are needed. While scalable OTC derivative processing and infrastructure have

always been fundamental to successful market growth and resiliency, they become even more critical during stressed markets. Throughout the course of the year, market participants outlined concrete plans for these improvements, which also enhance risk mitigation.

ISDA co-signed three derivative industry letters

The commitments cover all major OTC deriva-

to regulators in March, July and October which

tives asset classes as well as look to improve

detailed operational targets, commitments and

collateral management practices for these trans-

strategies. ISDA worked in conjunction with the

action types. Key targets include:

major dealers and buy-side institutions represented on the Operations Management Group (OMG) to present a series of strategic steps to further strengthen the operational infrastructure for OTC derivatives at varying points in time throughout the lifecycle process.

• increased electronic processing of eligible trades; • enhanced trade date confirmation issuance and execution; • elimination of material confirmation backlogs; • risk mitigation for paper trades;

25

ISDA 2009.indd 25

4/8/09 9:57:09 AM

• s treamlined trade life cycle management;

Questions Guide on Credit Derivative Processing

• r eduction in levels of outstanding trades via

Standards.

portfolio compression; • c entral settlement for eligible transactions.

As the over-the-counter derivatives industry continues to improve its post-trade performance ef-

Each of these efforts aims at reducing manual

ficiency across a range of metrics, industry im-

intervention and increasing straight-through-pro-

plementation groups will continue to work toward

cessing aspects where possible.

further automation, confirmation backlog reductions and increased use of technology to optimize

To continue the operational improvements, mar-

efficiency.

ket participants agreed on several fundamental milestones, including use of central counterparties for credit derivative transactions, increasing the portion of equity derivatives eligible for electronic matching, increasing credit derivative electronic submission timeliness for eligible transactions, and developing plans for central trade repositories for equity and interest rate derivatives.

In an effort to advance industry objectives, ISDA co-sponsored educational events that provided detailed updates on the commitments and their current states-of-play in New York, London, Sydney, Hong Kong and Tokyo. These events

CONTACT: Julian Day Head of Trading Infrastructure [email protected] Nichole Framularo Director of Trading Infrastructure [email protected] Clive Ansell Director of Trading Infrastructure [email protected] Jeffrey Kan Director of Trading Infrastructure [email protected] Anna Dunster Director of Trading Infrastructure [email protected]

aimed to further the industry’s understanding of the various operational commitments. Additionally, ISDA jointly published a Frequently Asked

26

ISDA 2009.indd 26

4/8/09 9:57:09 AM

FINANCIAL PRODUCTS MARKUP LANGUAGE

FpML

F

pML expansion has focused in the areas of commercial loans and financial commodities, with

Infrastructure

work in the physical commodities area soon to come. The existing asset classes have been updated as well, to reflect ongoing changes in documentation and market practice. The equity

area is a good example of this work.

In 2008, FpML versions 4.3 and 4.4 were pub-

try lead to a continuous need to improve and ex-

lished as Recommendations, within the 6-month

pand the coverage of the underlying standards.

cycle for minor versions. Version 4.5 became a

This standardization and automation will further

Recommendation in March 2009 and the devel-

increase the usefulness and importance of FpML

opment of version 4.6 has begun. The next ma-

as a technical standard.

jor version (5.0), is moving towards completion. At this stage, most major architectural changes have been agreed upon and are implemented in the draft versions. The collateral area has been targeted for further development.

CONTACT: Karel Engelen Director and Global Head, Technology Solutions [email protected]

Together with Swift, FIX and ISITC, FpML published an industry roadmap to reflect how the different financial industry standards can fit together and where their respective strengths lie. It is available at the Investment Roadmap page on the FpML site: (http://www.fpml.org/documents/ InvestmentRoadmap_20080411.pdf).

The rapid changes in the OTC derivatives indus-

27

ISDA 2009.indd 27

4/8/09 9:57:09 AM

FpML

®

Blue Sky Thinking www.fpml.org 28

ISDA 2009.indd 28

4/8/09 9:57:09 AM

Risk & Reporting

Accounting

C

hanges to accounting for financial instruments proposed by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) in 2008 affected ISDA members around the world. ISDA Accounting Committees were particularly active

in Tokyo, New York and London throughout 2008, consulting with and presenting to regulatory officials. Key issues in the last year included volatility in the credit and financial markets, fair value measurement,

In Europe, IASB proposed several amendments

then amended Statement 133, by requiring ex-

to IAS 39 on hedge accounting and classification

panded disclosures about an entity’s derivatives

of financial assets. Of particular importance were

and hedging activities.

Supervision

and global convergence of accounting standards.

some fast-tracked proposals on reclassification of financial assets, and another on embedded

FASB and IASB issued an updated Memorandum

derivatives. The Accounting Committee was ac-

of Understanding (MOU) describing priorities and

tive in all consultations, and was also involved

milestones related to the completion of major

with the FASB proposals to clarify paragraph 14B

projects by 2011. IASB board member Stephen

of Statement 133, which discusses whether an

Cooper, speaking at ISDA’s Accounting Sympo-

embedded derivative must be separated from its

sium in London, said that while the two boards

host contract. FASB’s Statement 161 proposals

have made considerable progress in converging

29

ISDA 2009.indd 29

4/8/09 9:57:10 AM

their sets of standards, progress on other major projects has been limited. Differences in views about the scope of the projects, and on resolving similar issues in active projects, have hampered results. In response, the boards put together a team to develop recommendations on moving forward.

The Accounting Committee responded to the

CONTACT: Ed Duncan Director, Head of Risk and Reporting [email protected] Huzefa Deesawala Head of Finance [email protected] Antonio Corbi Assistant Director, Risk and Reporting [email protected]

IASC Foundation (IASCF) consultation to enhance its Constitutional framework. The IASCF is the legal entity under which IASB operates, and is governed by a board of 22 Trustees. ISDA participated in all roundtables to promote the independence of the IASB standards process.

Looking forward, convergence to one set of global accounting standards is a key initiative in the years ahead. The SEC proposed a roadmap toward the use of International Financial Reporting Standards (IFRS) as the global accounting standard. A transition to IFRS for fiscal years ending after December 2014 has been proposed.

30

ISDA 2009.indd 30

4/8/09 9:57:10 AM

Risk & Reporting

Fair Value Accounting

T

he Securities and Exchange Commission (SEC), IASB and FASB issued guidance clarifying fair value measurement in 2008. The guidance touched on topics such as modeling assumptions when there is no relevant market data, use of broker quotes and distressed sales, and as-

sessment of other-than-temporary impairments. In a related development, FASB proposed amendments to Statement 157 on how to determine the fair value of a financial asset when markets are inactive. ISDA’s Accounting Committee was actively involved throughout the consultation process.

ISDA members were selected last year for IASB’s

was based on amortizing costs. The delayed re-

Expert Advisory Panel, which issued a report on

sponse only worsened the damage.

fair value measurement and disclosures for illiqPolicymakers’ recommendations should support

trusted source of educational guidance on both

transparency measures. Fair value is one of the

sides of the Atlantic.

tools to restore investor confidence and resume

Supervision

uid instruments. The EAP’s report has become a

normal bank lending behaviour. Refinements in It seems clear that fair value is on the minds of

measuring and reporting profit and losses for fi-

many as we negotiate the current economic tur-

nancial instruments that do not trade or trade in

moil, especially as it relates to mark-to-market

illiquid markets could be introduced without com-

accounting. Failure to use mark-to-market has

promising the core principles of fair value.

caused difficulties before. Large losses made by banks during the 1973 oil crisis and the 1990s Japanese banking crisis had their roots in nonperforming mortgage portfolios. In both cases, losses were not recognised (that is, marked to

CONTACT: Antonio Corbi Assistant Director, Risk and Reporting [email protected]

market) for years since the accounting model

31

ISDA 2009.indd 31

4/8/09 9:57:10 AM

Risk & Reporting

Eu Savings Tax Directive

T

he European Union is reviewing the Savings Tax Directive and potentially extending its scope on principles of better regulation. The aim of the Directive is to exchange information on savings income in one Member State with other Member States, through financial institutions.

The actual assessment of any associated tax li-

The European Commission is also negotiating

ability is purely a matter for the tax administration

with certain countries outside the EU, such as

and the beneficial owner since the information

Switzerland, Lichtenstein, or the United States,

exchange process is quite distinct from the tax

to make them enact equivalent provisions. With-

assessment. The objective is to ensure that citi-

out such measures, the purpose of reducing tax

zens of one Member State do not evade taxation

evasion is unlikely to be achieved, but would still

by either depositing funds or transacting outside

impose a huge cost to Member States’ financial

their jurisdiction of residence, thus distorting the

institutions.

single market. Through better regulation the EU may be also tempted to make taxable, within the scope of the Directive, more complex structures. However, there are proposed obligations under the Directive that have the potential to create havoc among European financial institutions. The first is the operational burden that might

CONTACT: Ed Duncan Director, Head of Risk and Reporting [email protected] Antonio Corbi Assistant Director, Risk and Reporting [email protected]

be imposed due to the information exchange process and the retrospective application of the Directive. The second is the scope of the review and the potential to include other types of debtgenerating obligations that could be characterized as income.

32

ISDA 2009.indd 32

4/8/09 9:57:10 AM

Public Policy

Financial Law Reform

O

n the international level, several legal reform efforts affect trading in OTC derivatives. In UNIDROIT (International Institute for the Unification of Private Law), the Convention on Harmonised Substantive Rules Governing Intermediated Securities has undergone the first of

two phases of adoption by member states. Chapter V of this convention contains key provisions on collateral arrangements and netting. The final session for adoption is scheduled for October 2009. The

Supervision

ISDA proposal for a global convention on netting in financial services has been included in the preliminary UNIDROIT work programme for 2009-2011. ISDA has submitted a further draft outline of such a convention to the Governing Council for final decision in late April 2009.

In the meantime, the European Commission con-

and insurance companies), the Settlement Final-

tinues its review of the EFMLG/ISDA proposal for

ity Directive, and the Insolvency Regulation.

an EU directive on netting. Several other industry associations have expressed support for the pro-

In the context of UNCITRAL (the United Nations

posal as well. A key aspect of the proposal is the

Commission on International Trade Law) ISDA

harmonization of set-off and netting provisions

was invited to an expert group of the Financial

across various EU instruments. Some of the in-

Markets Law Committee to discuss the effects

struments addressed include the Collateral Direc-

of a possible UK adoption of the UN Convention

tive, Winding-up Directives (for credit institutions

on Contracts for the International Sale of Goods

33

ISDA 2009.indd 33

4/8/09 9:57:10 AM

(CISG/Vienna Sales Convention). This treaty is

In February 2009 the UK Banking Act introduced

in force in most major jurisdictions in the Ameri-

a new netting regime for transactions with Brit-

cas, Europe and Asia. The convention has ef-

ish banks and building societies. One of the

fects on physical and financial transactions in

main features is the special resolution regime

a range of commodities and commodity deriva-

for failing banks and building societies. For the

tives, especially those governed by English law.

moment, the previous netting regime remains in

It is widespread practice to exclude the CISG

place for transactions with all other types of UK-

from transactions governed under any other law

based counterparties. However, it is intended to

(in particular New York law), and recent ISDA

extend the new regime to investment firms over

documentation in this area has featured a CISG

the summer of 2009.

waiver provision (eg the ISDA US Oil Annex). Several pieces of secondary legislation entered On the European Union level, the EU Regulations

into force at the same time. Among them is the

on the Law Applicable to Contractual Obligations

Restriction of the Partial Property Transfer Order

(the so-called Rome 1 Regulation) and Non-Con-

2009 (Safeguards Order). It aims to protect all

tractual Obligations (Rome 2 Regulation) have

transactions commonly included in netting and

entered into force. The Brussels 1 Regulation, on

collateral arrangements. Upon publication, ISDA

the Recognition and Enforcement of Judgments

made specific proposals to the UK authorities in

in Civil and Commercial Matters, is up for review.

order to address some shortcomings that affect

In the context of transactions under English law

the contents of any legal opinion involving UK

among counterparties located in EU jurisdictions,

banks and building societies. UK authorities in-

all these regulations have an effect on the choice

tend to make the clarifications before mid-year.

of law provisions, as well as the choice of forum clause. In a separate project, ISDA co-chairs a working group of legal practitioners and academics that in March 2009 started discussing the use of arbitration in financial services, especially de-

CONTACT: Peter Werner Policy Director [email protected]

rivatives.

34

ISDA 2009.indd 34

4/8/09 9:57:10 AM

Public Policy

United States

T

he last two years have seen a rapid shift in perceptions about OTC derivatives from public policymakers in the United States. Up to and immediately after passage of the Commodity Futures Modernization Act in 2000 (CFMA), the US Congress and regulators were broadly supportive

of the OTC business and recognized the valuable role derivatives play in the economy. Following the West Coast energy crisis in 2001-02, there was a small but vocal group of policymakers interested in

Starting in 2007, however, such efforts gained

the role of speculation in high commodity prices.

greater support culminating in passage last year

After the credit market collapse, derivatives have

of the CFTC Reauthorization Act of 2008. This law

come under even greater scrutiny in the US. Cur-

increased regulation and oversight of so-called

rent legislative proposals require that all OTC

“significant price discovery contracts,” or OTC

derivatives be cleared, give US regulators the

contracts in commodities, which were closely tied

power to order OTC participants to liquidate their

to prices on exchange-traded futures contracts.

positions, and in some cases even call for an

Passage of the legislation was immediately fol-

outright ban on OTC derivatives. Although such

lowed by even greater support for new restric-

a ban is unlikely, its proponents form a powerful

tions on OTC activity, particularly with respect to

minority in the US policymaking community.

Supervision

repealing parts of CFMA, but these efforts were routinely defeated in Congress.

35

ISDA 2009.indd 35

4/8/09 9:57:11 AM

The outlook suggests that significant change in the US regulatory approach to OTC derivatives is likely. What form this change will take is not yet clear, but across both the regulatory and con-

CONTACT: Greg Zerzan Counsel and Head of Global Public Policy [email protected]

gressional communities there is a consensus that greater transparency and oversight is required.

36

ISDA 2009.indd 36

4/8/09 9:57:11 AM

Public Policy

European Union

T

he year 2008 saw considerable EU scrutiny of the role of OTC derivatives in the financial turmoil. Lehman Brothers’ failure in September motivated the European Commission (EC) to establish a working group on OTC derivatives in October, with the priority of developing a “Eu-

ropean solution” for central clearing of CDS. Regulators were concerned with perceived systemic risk in CDS markets, and fearful of insufficient European oversight should a global central counterparty (CCP)

Supervision

be established outside the EU. Working group discussions faltered in December over dealing firms’ preference not to be required to clear their CDS trades in a European clearing house, but by February 2009, nine dealers had agreed to clear trades in an EU-based CCP by end-July.

The working group will now begin looking at the

Concerns about CDS combined with the rocky

other types of OTC derivatives, plus issues such

start of the working group had prompted proposed

as transparency. ISDA has already contributed to

amendments to the Capital Requirements Direc-

a Committee of European Securities Regulators

tive (CRD) in the European Parliament, levying

(CESR) consultation on transparency. Informa-

punitive capital requirements on CDS trades not

tion gleaned from CCPs and from the Deposi-

cleared in a European CCP. These amendments

tory Trust & Clearing Corporation (DTCC) Trade

were defeated, though the EP called for a review

Warehouse may prove valuable therein.

of OTC derivatives markets (an EC report will be published end-2009). The Market in Financial In-

37

ISDA 2009.indd 37

4/8/09 9:57:11 AM

struments Directive (MiFID) is also under review,

markets. Policymakers have found no clear link

with derivatives a thematic priority.

between non-commercial participation and high prices, but this issue remains contentious.

This focus on derivatives has led to a delay in the review of exemptions for commodity firms from MIFID and CRD. ISDA helped persuade policymakers to support later expiry of an exemption from the CRD (from end-2012 to end-2014), pending this review.

CONTACT: Richard Metcalfe Global Head of Policy [email protected] Roger Cogan European Policy Director [email protected]

ISDA is also busy at EU level defending the role of non-commercial participants in commodity

38

ISDA 2009.indd 38

4/8/09 9:57:12 AM

Public Policy

Emea Emerging Markets

I

n Europe, Poland and Slovakia have become focus countries for ISDA’s work in 2008/2009 with EU accession countries. In Poland, implementation of the EU Collateral Directive has been delayed as financial collateral arrangements and securities lending transactions are not yet included in the

scope of nettable transactions under the Bankruptcy Act. This has delayed ISDA in commissioning a collateral opinion on Poland thus far. In Slovakia, issues around the scope of eligible transactions as well

Supervision

as the range of counterparties eligible to netting and collateral agreements remain problematic despite improvements on the netting front. Also, transactions governed under laws from outside of the EU face restrictions. In southeastern Europe, ISDA will continue to monitor developments in Croatia and has started to look into the general legal landscape for derivatives in Bulgaria and Serbia.

Among countries in the CIS region, Russia con-

version that was submitted to the Lower House

tinues to be the top priority. It is expected that

in late 2007. Additionally, the final version of a

the Russian government will submit its draft bill

Russian local master agreement is scheduled for

on netting to the Lower House in April. The main

publication in the summer. ISDA is an observer to

regulator provided a rough outline of its ideas

the drafting process.

during an event jointly organized by EBRD, ISDA and three Russian banking associations in late

In Ukraine, ISDA is involved in discussions with

2008. This draft bill is meant to replace an earlier

local regulators and parliament in order to include

39

ISDA 2009.indd 39

4/8/09 9:57:12 AM

major amendments to a draft bill on derivatives

Discussions on the general legal framework for

which had been initially proposed in 2007. A re-

derivatives transactions have also been initiated

vised draft from 2008 is on hold in order to al-

with regulators in Qatar.

low for more input from experts. In January 2009, the Civil Code of Kazakhstan was amended to

Africa

include definitions of various derivative instru-

In late March, a new draft bill on insolvency

ments. Pursuant to talks with Kazakh regulators,

was submitted to parliament in Mauritius. The

ISDA has been requested to provide comments

bill includes a chapter drafted by ISDA and en-

on the forthcoming draft bill on netting.

dorsed by the local banking association to introduce close-out netting into local law, as well as

Middle East

updated conflict of law provisions in the area of

The final draft of the ISDA/IIFM Ta’Hawwut

intermediated securities. Updates on the general

(Hedging) Master Agreement, the Islamic ver-

legal framework for derivatives in Morocco and

sion of the conventional ISDA Master Agree-

Egypt have been circulated to the ISDA CEE/

ment, has been submitted for final approval to

EMEA Committee.

the IIFM Board of Shariah Experts. Publication is expected for mid-2009. Version 1 of this docu-

In the context of ISDA’s proposal to UNIDROIT

ment will cover Islamic profit-rate swaps based

on a global convention on netting in financial ser-

on commodity Murabaha. ISDA met with regula-

vices, initial contacts to regulators in Nigeria have

tors in the United Arab Emirates to discuss the

been established, in order to emphasize the need

introduction of the uniform legal regime for de-

for legal reform. Recently, regulators have started

rivatives transactions on the federal law level. Of

efforts to establish a local swap market.

key concern are general derivatives transactions issues, and close-out netting in particular. ISDA has been asked to provide official comments on existing regulations issued under the auspices of various regulators. Currently three different regu-

CONTACT: Peter Werner Policy Director [email protected]

lators supervise different areas of the markets.

40

ISDA 2009.indd 40

4/8/09 9:57:12 AM

Public Policy

Asia Pacific

S

ome broad trends and noteworthy themes that have emerged across the APAC region in response to the financial crisis. On the positive side, there has not been a “knee-jerk” reaction by Asian regulators against OTC derivatives. They generally express support for a market

discipline approach to regulation, though this is tempered by a desire to protect individual domestic constituencies from significant financial losses. The concern heard repeatedly throughout the region is that

Supervision

retail investors and small and medium enterprises alike are entering into complex derivatives transactions without understanding the risks or having the sophistication to manage them. However, this has not led to more regulatory hurdles, except in the retail structured product space, where regulators in Taiwan, Singapore and Hong Kong have announced plans to review the regulatory framework

Asian regulators have also been following interna-

Also of concern are the court cases that have

tional developments such as central counterparty

been filed in South Korea and India, especially

clearing (CCP), anti-cyclical regulatory capital re-

the Korean cases. In 3 out of 6 cases, the Seoul

quirements and MTM accounting changes. Some

District Court has granted payment injunctions

would like to see their own national champions

to Korean exporters that had put on (frequently

emerge as the Asian CCP, though rivalries and

leveraged) Won KIKO (knock-in, knock-out) op-

lack of economies of scale present challenges to

tion trades that have gone against them as the

regional implementation.

Won depreciated. Though the Korean Civil Code

41

ISDA 2009.indd 41

4/8/09 9:57:13 AM

does enshrine the requirements of trust and good

In the India cases, interim orders have so far ba-

faith in dealings, the court’s liberal interpretation

sically upheld the sanctity of contracts. Neverthe-

of this and the related doctrine of “changed cir-

less, ISDA is keeping a close watch on all these

cumstances” means that banks can no longer

pending cases.

safely transact on an arm’s length basis with their counterparties, and that enforceability of legal contracts is undermined. Indeed, the court’s decisions are tantamount to a finding that banks owe a duty of care to their counterparty and must ensure that the transaction is suitable and that the counterparty both understands and can manage

CONTACT: Keith Noyes Regional Director, Asia Pacific [email protected] Jacqueline Low Senior Counsel, Asia Pacific [email protected]

the risks of the transaction.

42

ISDA 2009.indd 42

4/8/09 9:57:13 AM

Public Policy

JAPAN

T

hroughout 2008, ISDA continued to provide forums for members to contribute to the development of Japan’s privately negotiated derivatives market. Following the market events of late 2008, Japan Credit Derivatives Committee members grew increasingly concerned with media

coverage of the CDS business. To promote an accurate understanding of the business, members prepared and published a Japanese-language FAQ on credit default swaps. The piece covered a range

Supervision

of topics including product descriptions, market trends, applicable regulations and CDS impact on the financial crisis.

On the equities front, the Variance Swap Work-

in March 2009, published by ISDA as a Market

ing Group formed under the Japan Equity Deriva-

Practice Statement.

tives Committee continued active discussions on the circumstances under which exchange-im-

ISDA carried on dialogue with Japanese regula-

posed daily price limitations constitute a Market

tors on improving the market environment, and

Disruption Event for equity variance swaps. ISDA

addressed remaining issues in implementing the

facilitated conference calls for market partici-

Financial Instruments and Exchange Act (FIEA).

pants to consider different approaches in promot-

FIEA covers the treatment of collateral posted

ing orderly valuation and settlement. As a result,

against OTC financial future transactions in light

the Working Group agreed on a set of guidelines

of client asset segregation rules. These are situ-

43

ISDA 2009.indd 43

4/8/09 9:57:13 AM

ations in which the loan and set-off approach in ISDA’s Collateral Support Documents would not be appropiate.

In the new products area, ISDA was involved in the deliberations of the Study Group organized

CONTACT: Tomoko Morita Policy Director & Head of Tokyo Office [email protected] Kumi Namba Assistant Director, Policy [email protected]

by the Ministry of Economy, Trade and Industry on Japan’s emissions trading market. ISDA submitted comments to the resulting report on practical issues such as transfer/delivery/settlement of Kyoto Credits, and valuation methodology.

Accounting standards are increasingly important for the sound development of the OTC derivatives market. The Japan Accounting Committee was formed in 2008 to discuss and examine market practices, such as hedge fund accounting rules, fair value measurement and international convergence of accounting standards.

44

ISDA 2009.indd 44

4/8/09 9:57:13 AM

Education & Outreach

Research

T

he ISDA Research team supports education and policy activities, primarily by means of seminars and surveys. But 2008 saw the addition of a new initiative: the launch of ISDA Research Notes, a quarterly publication that discusses public policy issues and market trends related to

OTC derivatives. The first Note, “The ISDA Market Survey: What the results show and what they don’t show,” appeared in late 2008. It discussed why Market Survey results are a reasonable measure of market size and growth, but not of risk. The second Note appeared at the start of 2009, and discussed transaction transparency for OTC derivatives, and why a “one size fits all” model of transparency does not promote market efficiency.

ISDA Research continues its regular Survey ac-

oped a recurring seminar on Counterparty Credit

tivities, which consist of the semi-annual Market

Risk. The new seminar covers measurement and

Survey and the annual Margin Survey and Op-

management of the credit risk associated with

erations Benchmarking Survey. The Operations

derivatives. In addition to presentations by ISDA

Benchmarking Survey underwent significant re-

Research staff, the seminar features a practitioner

visions for 2008 in order to achieve consisten-

panel consisting of lawyers and collateral manag-

cy with the data contributed by the G16 dealer

ers. See www.isda.org for upcoming dates.

group. In addition, the Market Survey now distinguishes between bought and sold protection

Education & Education & Outreach Outreach

With regard to education, ISDA Research devel-

45

ISDA 2009.indd 45

4/8/09 9:57:14 AM

in its credit default swap notional amounts. The

tions of market standards. One recent effort has

above notional amounts, which total $531.2 tril-

been to clarify the compounding conventions

lion across asset classes, are an approximate

used in derivative transactions; results are post-

measure of derivatives activity, and reflect both

ed on the Trading Practice Committee webpage.

new transactions and existing transactions. The

Another has been to work with other industry

amounts, however, are a measure of activity,

groups to ensure consistency across documents

not a measure of risk. The Bank for International

for varying asset classes.

Settlements (BIS) collects both notional amounts and market values in its derivatives statistics and it is possible to use the BIS statistics to determine the amount at risk in the ISDA survey results.

Finally, ISDA Research continues its involvement in clarifying market practice for OTC derivatives, with the objective of reducing the number of disputes that might arise from differing interpreta-

CONTACT: David Mengle Head of Research [email protected] Anatoli Kuprianov Director of Technical Analysis [email protected] Julia Pachos Research Associate [email protected]

46

ISDA 2009.indd 46

4/8/09 9:57:14 AM

ISDA 2009.indd 47

Education & Outreach

Source: ISDA Research

4/8/09 9:57:14 AM

Education & Outreach

Membership

I

n 2008 ISDA welcomed 100 new members. To date ISDA’s membership totals over 820 financial institutions, government entities, corporations and professional service providers, spanning 57 countries and six continents. ISDA continues to work through its active committees, working groups

and educational efforts to address ongoing industry needs. ISDA’s members are classified into three categories according to the guidelines contained in its by-laws.

Primary Members – dealer firms

provides a forum for these industry participants to

According to the Association’s by-laws, every in-

stay abreast of and contribute to important devel-

vestment, merchant or commercial bank or other

opments and initiatives.

corporation, partnership or other business organization that, directly or through an affiliate, as

Subscriber Members – end-users

part of its business (whether for its own account

ISDA’s Subscriber Membership category is de-

or as agent), deals in derivatives shall be eligible

signed for corporations, financial institutions,

for election to membership in the Association

government entities and others who use privately

as a Primary Member, provided that no person

negotiated derivatives to better manage financial

or entity participates in derivatives transactions

risks. Subscriber Membership provides a forum

solely for the purpose of risk hedging or asset or

for these industry participants to stay abreast of

liability management.

and contribute to important developments and initiatives.

Associate Members – service providers ISDA’s Associate Membership category is de-

Only ISDA members are entitled to receive the

signed for service providers — brokers, law firms,

Association’s legal opinions on the enforceabil-

accounting firms, consulting firms and software

ity of the netting provisions of the ISDA Master

providers — who are active in the privately negoti-

Agreements. ISDA has obtained netting opinions

ated derivatives business. Associate Membership

for 53 jurisdictions. In addition to the netting opin-

48

ISDA 2009.indd 48

4/8/09 9:57:15 AM

ions, ISDA provides members with legal opinions

receive complimentary copies of all new publica-

on the ISDA Credit Support Documents from 43

tions upon their release.

different jurisdictions. Only ISDA members are eligible to attend the AsOnly ISDA members are able to participate in the

sociation’s Annual General Meeting, which is the

Association’s numerous Committees, Working

industry’s preeminent forum for the discussion of

Groups and Task Forces, which serve to address

developments and issues in the privately negoti-

issues in the rapidly evolving derivatives market.

ated derivatives business.

ISDA members exclusively receive the numer-

In addition, a strong preference is given to en-

ous policy papers, response letters, market sur-

listing speakers from ISDA member firms at the

vey data and communications on key business

Association’s numerous conferences and semi-

issues that the Association and its consultants

nars.

generate. CONTACT: ISDA members receive substantial discounts

and supporting documents published by the Association. Primary Contacts at member firms

ISDA 2009.indd 49

Education & Outreach

when ordering copies of the Master Agreement

Liz Zazzera Director of Conferences & Membership [email protected]

4/8/09 9:57:15 AM

ISDA PRIMARY MEMBERS Abbey National Plc ABSA Bank Ltd. Abu Dhabi Commercial Bank Accord Energy Limited Agricultural Bank of China Allied Irish Banks, plc American International Group, Inc. American International Group, Inc. AmInvestment Bank Bhd Andorra Banc Agricol Reig, S.A. (ANDBANC) Aozora Bank Assured Guaranty Corp. Australia and New Zealand Banking Group, Limited Axis Bank Ltd. Banca Akros Spa Banca Aletti & C. S.p.A. (Gruppo Banco Popolare di Verona e Novara) Banca d’Intermediazione Mobiliare IMI S.p.A. BANCA INTERMOBILIARE SpA Banca Monte Dei Paschi Di Siena SpA Banca Popolare di Milano scarl Banca Popolare di Vicenza Banca Profilo, S.p.A. Banco Bilbao Vizcaya Argentaria, S.A. Banco BPI, S.A. Banco Bradesco S.A. Banco Comercial Portugues S.A. Banco Espanol de Credito, S.A. (BANESTO) Banco Espírito Santo S.A. Banco Itaú S/A Banco Popular Espanol Banco Votorantim S/A - Nassau Branch Bank BPH SA Bank Hapoalim B.M. Bank Julius Baer & Co. Ltd. Bank Leumi le-Israel B.M. Bank of America N.A. Bank of Beijing Co., Ltd Bank of China Bank of Ireland Global Markets Bank of Montreal The Bank of New York Mellon Bank of Ningbo Co., Ltd Bank of Nova Scotia Bank of Scotland plc, Treasury Bank of Shanghai Co., Ltd. Bank Vontobel AG Bankthai Public Company Limited Banque Degroof SA Barclays Capital

Bayerische Hypo-und Vereinsbank AG (HVB) Bayerische Landesbank BHF Bank (Berliner Handels-und Frankfurter) BNP Paribas BP Plc Branch Banking and Trust Company (BB&T) BRE BANK SA BSI SA Caixa d’ Estalvis i Pensions de Barcelona “la Caixa” Caja De Ahorros De Galicia Caja de Ahorros Y Monte de Piedad de Madrid Calyon Corporation Cargill, Incorporated Carnegie Investment Bank AB Ceská sporitelna, a.s. China CITIC Bank China Construction Bank China Development Financial Holding Corporation Chinatrust Commercial Bank Chuo Mitsui Trust & Banking Co. Ltd. CIBC World Markets Inc. Citigroup Commerce International Merchant Bankers Berhad Commerzbank AG Commonwealth Bank of Australia Confederacion Espanola de Caja de Ahorros ConocoPhillips Coral Energy, L.P. Credit Industriel et Commercial (CIC) Credit Suisse Daiwa Securities SMBC Co. Ltd. Danske Bank A/S DBS BANK LTD DEPFA BANK plc Deutsche Bank AG Dexia Bank Belgium S.A. DnB NOR Bank ASA Dresdner Bank AG DZ BANK AG Deutsche Zentral-Genossenschaftsbank E.Sun Commercial Bank, Ltd. EDF Trading Limited EFG Eurobank Ergasias S.A. EFG International Erste Bank Group AG Europe Arab Bank plc F. van Lanschot Bankiers N.V. The First International Bank of Israel Ltd.

50

ISDA 2009.indd 50

4/8/09 9:57:15 AM

ISDA PRIMARY MEMBERS FirstRand Bank Limited Fortis Bank NV/SA GASELYS Generali SGR S.p.A. Goldman Sachs & Co. Gulf International Bank (UK) Limited Hamburger Sparkasse Hang Seng Bank Limited HDFC Bank Limited Hess Energy Trading Company, LLC HSBC Holdings plc HSH Nordbank AG Hydro-Quebec ICICI Bank Limited IKB Deutsche Industriebank AG Industrial and Commercial Bank of China Industrial Bank Co., Ltd. Industrial Bank of Korea ING Bank N.V. Intesa Sanpaolo SpA Investec Bank Limited Irish Life & Permanent plc J.P. Morgan Chase & Co. Jefferies Group, Inc JSC Halyk Bank Jyske Bank A/S KASIKORNBANK Public Company Limited KBC Bank KeyCorp Koch Supply & Trading, LP Komercní banka, a.s. Kookmin Bank The Korea Development Bank Korea Exchange Bank Kotak Mahindra Bank Ltd. Landesbank Baden-Württemberg Landesbank Hessen - Thueringen Girozentrale Lloyds TSB Bank plc Macquarie Bank Limited Maple Bank GmbH Meliorbanca S.p.A. Mitsubishi UFJ Financial Group (MUFG) Mitsui & Co., Ltd. Mizrahi Tefahot Bank Ltd. Mizuho Financial Group Morgan Stanley & Co. International plc National Australia Bank Limited National Bank of Abu Dhabi National Bank of Canada National Bank of Greece National Bank Trust

National City Bank NATIXIS Nedbank Limited NIBC Nomura Securities Co., Ltd. Norddeutsche Landesbank Girozentrale Nordea Bank Finland Plc Norinchukin Bank nv Nuon Energy Trade & Wholesale Nykredit Bank A/S Osterreichische Volksbanken-Aktiengesellschaft Oversea-Chinese Banking Corporation Limited Piraeus Bank S.A. PNC Bank, N.A. Pohjola Bank plc Rabobank Nederland Raiffeisen Zentralbank Austria AG Regions Bank Renaissance Capital Resona Bank, Ltd. Royal Bank of Canada The Royal Bank of Scotland plc RWE Supply & Trading GmbH Sal. Oppenheim jr. & Cie KGaA Samsung Securities Co., Ltd. Santander Central Hispano, S.A. Shanghai Pudong Development Bank Shinko Securities Co., Ltd. Shinsei Bank, Limited Shoko Chukin Bank Skandinaviska Enskilda Banken SMBC Capital Markets, Inc. Societe Generale The Standard Bank of South Africa Standard Chartered Bank STASCO State Bank of India State Street Bank & Trust Company Sumitomo Mitsui Banking Corporation Sumitomo Trust and Banking Co., Ltd. Suncorp-Metway Limited SunTrust Robinson Humphrey Capital Markets Svenska Handelsbanken (Handelsbanken Markets) Swedbank AB Swiss Re Financial Products Sydbank A/S Taishin International Bank The Toronto-Dominion Bank Totsa Total Oil Trading S.A. Troika Dialog New Members appear in italics 51

ISDA 2009.indd 51

4/8/09 9:57:15 AM

ISDA PRIMARY MEMBERS Turkiye Garanti Bankasi A.S. UBS AG Union Bank of India United Bank Limited United Overseas Bank Limited VTB Bank Europe plc

Wachovia Corporation Wells Fargo Bank Westdeutsche Genossenschafts-Zentralbank eG WestLB AG Westpac Banking Corporation XL America, Inc. Zurcher Kantonalbank Total Primary Members: 210

ISDA ASSOCIATE MEMBERS A & L Goodbody Abreu Advogados Addleshaw Goddard Advokatfirman Hammarskiöld & Co. Advokatfirman Vinge KB Aird & Berlis LLP Akin, Gump, Strauss, Hauer & Feld LLP Algorithmics, Inc. Ali Budiardjo, Nugroho, Reksodiputro (ABNR) Allen & Overy LLP Allens Arthur Robinson Allustra Limited Alston & Bird LLP Amarchand & Mangaldas & Suresh A. Shroff & Co. Anderson Mori & Tomotsune Appleby APYDOS SA Arendt & Medernach Arthur Cox Solicitors Ashurst Atsumi & Partners AZB & Partners Baker & McKenzie LLP Baker Botts L.L.P. Bär & Karrer Bech-Bruun Bell Gully Berwin Leighton Paisner BGC Brokers LP Binder Grosswang Rechtsanwalte Bingham McCutchen LLP Bird & Bird Blackbird Holdings, Inc. Blake Dawson Blake, Cassels & Graydon LLP

Bloomberg Financial Markets BM&F - Bolsa de Mercadorias & Futuros Bond Exchange of South Africa Borden Ladner Gervais, LLP Bowman Gilfillan Inc. Bracewell & Giuliani LLP Brown Rudnick Berlack Israels LLP Brzobohaty Broz & Honsa v.o.s. Buck Consultants, LLC Buddle Findlay Bulboaca & Asociatii SCA Cadwalader, Wickersham & Taft Cameron McKenna Cardigos e Associados - Sociedade de Advogados RL Caspi & Co. CETIP - Câmara de Custódia e Liquidação Chadbourne & Parke LLP Chambers of Sir Hamid Moollan Q.C. Chatham Financial Corp. Chicago Board Options Exchange Chiomenti Studio Legale City-Yuwa Partners Clayton Utz The Clearing Corporation The Clearing Corporation of India Ltd. Cleary, Gottlieb, Steen & Hamilton LLP Clifford Chance LLP CLS Services Limited Clyde & Co. CME Group Inc. Conyers Dill and Pearman Copp Clark Professional Corrs Chambers Westgarth Covington & Burling LLP Cravath, Swaine & Moore LLP

52

ISDA 2009.indd 52

4/8/09 9:57:15 AM

ISDA ASSOCIATE MEMBERS Creditex Group Inc. CreditSights, Inc. Cuatrecasas Abogados, S.R.L. Curtis, Mallet-Prevost, Colt & Mosle LLP D. Harris & Co. International Ltd Dave & Girish & Co. DAVID DOBLE Solicitors Davies Ward Phillips & Vineberg Davis Polk & Wardwell De Brauw Blackstone Westbroek De Pardieu Brocas Maffei Debevoise & Plimpton LLP Dechert LLP Denton Wilde Sapte The Depository Trust & Clearing Company Dewey & LeBoeuf Dillon Eustace DLA Piper DNC Advocates At Work Dominion Bond Rating Service Limited Donaldson Legal Consulting eClerx EMC Document Sciences Ernst & Young LLP Eurex Clearing AG Euroclear SA/NV EVERSHEDS LLP Faegre & Benson LLP Field Fisher Waterhouse LLP Fitch Ratings Inc. Foley & Lardner LLP Freehills Freshfields Bruckhaus Deringer Fried, Frank, Harris, Shriver and Jacobson Ganado & Associates Advocates Gernandt & Danielsson Advokatbyrå KB GFI Group Gibson, Dunn & Crutcher LLP Gide Loyrette Nouel Global Electronic Markets LLC GlobeOp Financial Services Goodmans LLP Goodwin Procter LLP Gorrissen Federspiel Kierkegaard Gowling Lafleur Henderson LLP Grech Vella Tortell & Hyzler-Advocates Greenberg Traurig, LLP Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Hahn & Hessen LLP Harney Westwood & Riegels

Harry Jho LLC Herbert Smith Herguner Bilgen Ozeke Holman Fenwick & Willan Homburger Houthoff Buruma Hughes Hubbard & Reed Hunton & Williams IBM Corporation ICAP Interactive Data Corporation IntercontinentalExchange, Inc. Japan Credit Rating Agency, Ltd Jermyn Capital Partners PLC Johnson Winter & Slattery Jones Day JunZeJun Law Offices Juris Corp Karatzas & Partners Katten Muchin Rosenman Kaye Scholer LLP Kim & Chang King & Spalding LLP King & Wood Kirkland & Ellis Kirkpatrick & Lockhart Preston Gates Ellis LLP Kramer Levin Naftalis & Frankel LLP Kromann Reumert Kutak Rock LLP L. Morris Legal Landwell Latham & Watkins LCH.Clearnet Limited Lee & Ko Lee & Li Lenz & Staehelin Linklaters Allen & Gledhill Pte Ltd Linklaters LLP Lombard Risk Systems Ltd. London International Financial Futures and Options Exchange (LIFFE) Lovells LLP Lowenstein Sandler PC Loyens & Loeff Mallesons Stephen Jaques Mannheimer Swartling Advokatbyra AB Maples and Calder Marex Financial Limited MarketAxess Markit Group Limited

53

ISDA 2009.indd 53

4/8/09 9:57:15 AM

ISDA ASSOCIATE MEMBERS Marval O’Farrell & Mairal Matheson Ormsby Prentice Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados Mayer Brown LLP McCann FitzGerald McCarthy Tétrault LLP McClure Naismith McDermott Will & Emery LLP McKee Nelson LLP McMillan Binch Meitar Liquornik Geva & Leshem Brandwein Meyer Lustenberger Attorneys-at-Law MF Global UK Limited Milbank, Tweed, Hadley & McCloy Misys Banking Systems Mitsui Company Moody’s Investors Service, Inc. Moore & Van Allen PLLC Morgan, Lewis & Bockius Mori Hamada & Matsumoto Morrison & Foerster LLP Munsch Hardt Kopf & Harr, P.C. Nagashima Ohno & Tsunematsu NautaDutilh NetDelta LLC Newedge Group Nishimura & Asahi Nord Pool ASA Norton Rose LLP Novarum Risk Management UK Limited NS Solutions Corporation NTT Data Corporation O’Melveny & Myers LLP ODL Securities Limited Oesa Limited Ogier Ogilvy Renault Oh-Ebashi LPC & Partners Olswang Omgeo Orrick, Herrington & Sutcliffe LLP Osler, Hoskin & Harcourt LLP Patton Boggs LLP Paul, Weiss, Rifkind, Wharton & Garrison LLP Pekin & Pekin Peltonen, Ruokonen & Itainen Oy Pillsbury Winthrop Shaw Pittman LLP Pinheiro Neto - Advogados Pinsent Masons Plesner Svane Grønborg, Law Firm

PricewaterhouseCoopers Progress Software Purrington Moody Weil LLP Quick Corp. Radar Logic Incorporated Rating and Investment Information, Inc. Reed Smith LLP Reuters Richards Kibbe & Orbe LLP Ritch Mueller, S.C. Rojs, Peljhan, Prelesnik & Partners Ropes & Gray S.W.I.F.T. sc Salans LLP Sapient Schiff Hardin LLP SCHOENHERR RECHTSANWAELTE GMBH Schulte Roth & Zabel LLP Scrittura, Inc. Seward & Kissel LLP Shearman & Sterling LLP Shearn Delamore & Co. Shin & Kim Sidley Austin LLP Simmons & Simmons Simpson Thacher & Bartlett Singapore Exchange Limited SJ Berwin Skadden, Arps, Slate, Meagher & Flom Slaughter and May Soltysinski, Kawecki & Szlezak Sonnenschein Nath & Rosenthal LLP Standard & Poor’s Stikeman Elliott LLP Stroock & Stroock & Lavan LLP Sullivan & Cromwell SunGard Data Systems Inc. Sutherland, Asbill & Brennan LLP Taylor Wessing Teigland-Hunt & Associates LLP Thompson Hine LLP Thunderhead Ltd. TMI Associates Tokyo Financial Exchange (TFX) Tokyo Stock Exchange Group, Inc. Tradeweb Markets LLC Tradition (North America), Inc. Travers Smith TriOptima Troutman Sanders, LLP Tullett Prebon

54

ISDA 2009.indd 54

4/8/09 9:57:15 AM

ISDA ASSOCIATE MEMBERS Uria Menendez Abogados, S.L.P. Ustariz & Abogados Estudio Jurídico Versif INC Vinson and Elkins L.L.P. VOB-Service GmbH Vyapar Capital Market Partners LLC Walder Wyss & Partners Weil Gotshal & Manges WFW Global LLP White & Case LLP

Willkie, Farr & Gallagher LLP WilmerHale Winston & Strawn LLP Wistrand Advokatbyra WOLF THEISS Rechtsanwälte GmbH Womble Carlyle Sandridge & Rice, PLLC Wong Partnership Yigal Arnon & Co. Yulchon Zaid Ibrahim & Co. Total ASSOCIATE Members: 290

ISDA SUBSCRIBER MEMBERS Aareal Bank AG AB Svensk Exportkredit ADI Alternative Investments AEGON USA Investment Management, LLC African Development Bank AGF Asset Management Aladdin Capital Management LLC Alberta Treasury Branches (ATB Financial) Alexandra Investment Management, LLC Alliance Capital Management L.P. Allstate Investments, LLC Ambac Financial Group, Inc. American Electric Power Service Corporation American Express Company American Honda Finance Corporation Ameriprise Financial, Inc. AMVESCAP plc Anchorage Advisors, L.L.C. Ares Management LLC Artradis Fund Management Pte Ltd Asian Development Bank Athilon Structured Investment Advisors, LLC Austrian Federal Financing Agency (AFFA) Aviva Investors Global Services Limited AXA BANK EUROPA SA AXA Investment Managers B. Metzler seel Sohn & Co. KGaA Babcock & Brown Baillie Gifford & Co. Banco de Portugal Bank for International Settlements Bank Nederlandse Gemeenten, nv Bank of Canada

Bank of England The Bank of Fukuoka, Limited The Bank of Kyoto, Ltd. Bank of Lithuania Banque De France Banque et Caisse d’Epargne de l’Etat, Luxembourg The Baupost Group, L.L.C. BBT Fund L.P. Beijing Gao Hua Securities Company Limited BG Group Plc BlackRock Financial Management BlueCrest Capital Management LLP BlueMountain Capital Management, LP Bradford & Bingley plc Brevan Howard Asset Management LLP Bridgewater Associates, Inc. British Energy Trading and Sales Limited Brown Brothers Harriman & Co. Bunge SA Business Development Bank of Canada Cairn Financial Products Limited Caisse Centrale Desjardins Caisse de depot et Placement du Quebec Caisse des Dépôts California Department of Water Resources Electric Power Fund California State Teachers’ Retirement System (CalSTRS) Canada Mortgage and Housing Corporation Canada Pension Plan Investment Board Canyon Capital Advisors LLC Capital Group International, Inc.

 55

ISDA 2009.indd 55

4/8/09 9:57:15 AM

ISDA SUBSCRIBER MEMBERS Capital One Financial Corp. Cassa Depositi e Prestiti S.p.A. Central Bank of the Russian Federation (Bank of Russia) Channel Capital Advisors LLP Chevron Corporation Cheyne Capital Management (UK) LLP China Development Bank Citadel Investment Group, L.L.C. Co-Operative Financial Services Limited Cobelfret SA Conectiv Energy Supply, Inc. Convexity Capital Management LP COREALCREDIT BANK AG Council of Europe Development Bank Countrywide Financial Corporation CQS (UK) LLP D.E. Shaw & Co., L.P. DekaBank Deutsche Girozentrale Depfa Deutsche Pfandbrief Bank AG Deutsche Postbank AG DKR Capital Inc. Drax Power Limited DTE Energy Trading, Inc. Dunbar Bank Plc Dutch State Treasury Agency E.ON Energy Trading AG EADS NV Eksportfinans ASA Electrabel NV/SA Electricite de France Elektrizitaets-Gesellschaft Laufenburg AG (EGL AG) Ellington Management Group, L.L.C. Endesa Italia SpA Endesa, S.A. Enel SPA Energie Ouest Suisse (EOS) Eni S.p.A. Eskom Holdings Limited Essent Energy Trading B.V. Eton Park Capital Management, L.P. EUROFIMA European Bank for Reconstruction & Development European Investment Bank Export Credits Guarantee Department Export Development Canada The Export-Import Bank of China F&C Management Limited Fairfax Financial Holdings Limited

Federal Home Loan Bank of Atlanta Federal Home Loan Bank of Boston Federal Home Loan Bank of Chicago Federal Home Loan Bank of Cincinnati Federal Home Loan Bank of Dallas Federal Home Loan Bank of Des Moines Federal Home Loan Bank of Indianapolis Federal Home Loan Bank of New York Federal Home Loan Bank of Pittsburgh Federal Home Loan Bank of San Francisco Federal Home Loan Bank of Seattle Federal Home Loan Bank of Topeka Federal Home Loan Mortgage Corporation (Freddie Mac) Federal National Mortgage Association (Fannie Mae) Fidelity Investments Money Management, Inc. Fifth Third Bank FIL Limited Florida State Board of Administration FMC Corporation Fonds de Réserve pour les Retraites Ford Motor Credit Company Friesland Bank N.V. Gas Natural sdg, S.A. Gazprom Marketing & Trading Ltd General Electric Capital Corporation General Re Financial Products Corp. Genworth Financial Glencore International AG GLG PARTNERS LP Gordian Knot Limited Government Debt Management Agency Private Company Limited by Shares (Hungary) Government of Canada, Department of Finance Government of Singapore Investment Corporation Pte Ltd Greywolf Capital Management, LP Gunvor International BV, Amsterdam, Geneva Harvard Management Company, Inc. HBK Services LLC Henderson Global Investors Limited Highbridge Capital Management, LLC Howard Hughes Medical Institute Hypo Alpe-Adria Bank International AG III Offshore Advisors Indian Oil Corporation, Limited Instituto de Credito Oficial Instituto de Gestao de Credito Publico Int’l Bank for Reconstruction (World Bank)

56

ISDA 2009.indd 56

4/8/09 9:57:15 AM

ISDA SUBSCRIBER MEMBERS Intel Corporation Inter-American Development Bank International Finance Corporation Ionic Capital Management LLC IXIS Asset Management J&S Group Limited J. R. Simplot Company Japan Post Bank Co., Ltd. John Hancock Financial Services The Joyo Bank, Ltd. The Juroku Bank Ltd KAS Derivaten Clearing N.V. KfW King Street Capital Management, L.P. Kingdom of Belgium Kingdom of Denmark Kingdom of Sweden Kommunalbanken AS Kommunalkredit Austria AG KommuneKredit Kommuninvest i Sverige AB (publ) Landesbank Berlin AG Landesbank Saar Landeskreditbank Baden-Wuerttemberg Foerderbank Landwirtschaftliche Rentenbank Laurentian Bank of Canada Legal and General Investment Management (Holdings) Ltd. LIM Advisors Limited Lombard Odier Darier Hentsch & Cie Louis Dreyfus Corporation Louis Dreyfus Energy Services L.P. M & G Investment Management Limited M/S Bharat Petroleum Corporation Limited (BPCL) Magnetar Capital LLC Man Investments Ltd Mandatum Life Insurance Company Limited Massachusetts Mutual Life Insurance Company MBIA Insurance Corp McDonald’s Corporation MetLife MFS Investment Management Millennium Partners, L.P. Mitsubishi Corporation Mitsui Sumitomo Insurance Company Limited MKP Capital Management, LLC MN Services N.V. Moore Capital Management LLC Munich Re Capital Markets GmbH

Municipality Finance Plc National Bank of Poland National Rural Utilities Cooperative Finance Corporation National Swedish Pension Fund Nationwide Building Society Natixis Commodity Markets Limited Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (“FMO”) Nederlandse Waterschapsbank N.V. New South Wales Treasury Corporation New Zealand Debt Management Office Newshore Financial Services Inc. Nexen Inc. Nordic Investment Bank Norges Bank Northern Trust Novartis International AG NRW.BANK OFI ASSET MANAGEMENT OGE Energy Resources, Inc. Ontario Financing Authority Ontario Teachers’ Pension Plan Board Opet Trade (Singapore) Pte. Ltd Øresundsbro Konsortiet OZ Management, L.L.C. Pacific Investment Management Company LLC Pacific Life Insurance Company Paloma Partners Management Company Paulson & Co. Inc Perfect Treasure Investment Limited Pershing Square Capital Management, L.P. Peugeot SA Pfizer Inc. PGGM Pioneer Investment Management Limited Portland General Electric Primus Asset Management, Inc. ProLiance Energy LLC Province of British Columbia Prudential Global Funding LLC PSEG Energy Resources & Trade LLC PSolve Asset Solutions Public Sector Pension Investment Board Putnam Investments Quadrant Structured Investment Advisers LLC (QSI) Québec Queensland Investment Corporation Queensland Treasury Corporation QVT Financial LP

57

ISDA 2009.indd 57

4/8/09 9:57:15 AM

ISDA SUBSCRIBER MEMBERS Raiffeisen Switzerland Genossenschaft Regiment Capital Management, LLC Reliance Industries Limited Renault SAS Republic of Finland Reserve Bank of New Zealand S.A.C. Capital Advisors, L.P. Sandelman Partners, L.P. Sanofi-Aventis Saracen Energy Advisors LP Saxo Bank A/S Schroders plc ScottishPower Energy Management Limited Shell Asset Management Company B.V. (SAMCo) Shinkin Central Bank Siemens Aktiengesellschaft Sierra Pacific Resources Sinopec (Hong Kong) Petroleum Company Limited SK Energy Co., Ltd. SNCB Holding SNS Bank N.V. Sompo Japan Insurance Inc. Soros Fund Management LLC Sound Capital Management, Inc. South African Reserve Bank Southwest Gas Corporation Sparkasse KoelnBonn Standard Life Investments Limited Stark Investments StatoilHydro ASA Stevens Capital Management LP Stichting Pensioenfonds ABP Stone Tower Capital Student Loan Marketing Association (Sallie Mae)

SUEK AG Suez Energy Marketing NA, Inc. Suez-Tractebel S.A. Sumitomo Corporation Sun Life Assurance Company of Canada Susquehanna Financial Products Sveriges Riksbank Swedish Housing Finance Corp. Swiss National Bank Taconic Capital Advisors L.P. Telecom Italia SpA Telkom SA Limited Temasek Holdings (Private) Limited Total Capital S.A. Toyota Financial Services TPG-Axon Capital Management, LP Trafigura Derivatives Limited TransCanada Pipelines Limited Transnet Limited Treasury Corporation of Victoria Tudor Investment Corporation U.S. Bancorp Union Bank of California, N.A. University of Notre Dame The Vanguard Group, Inc Vattenfall A.B. Vitol SA Vodafone Group Services Ltd. Volvo Treasury AB Webster Bank Wellington Management Company, LLP Western Australian Treasury Corporation Western Bulk Carriers KS Westfield Holdings Limited Weyerhaeuser Asset Management LLC Whitebox Advisors, LLC Yorkshire Building Society Total SUBSCRIBER Members: 324 TOTAL ISDA MEMBERS 824

58

ISDA 2009.indd 58

4/8/09 9:57:15 AM

ISDA Conferences & Events 2008 2006 ISDA Definitions – ISDA Symposium 2008 ISDA Regional Conference A Primer on Documenting Non-Deliverable Forwards, Options & Swaps – ISDA and EMTA Symposium Close-Outs and the Impact of Market Events – ISDA Workshop Counterparty Credit Risk Seminar Covered Bonds and their Documentation – ISDA Symposium

Ethics Issues Confronting Lawyers in the Financial Services Industry – ISDA Symposium Extending FpML –Advanced Training Course FpML Training Course Fundamentals of Commodity Derivatives Seminar Fundamentals of Credit Derivatives Seminar Fundamentals of Derivatives Seminar Fundamentals of Equity Derivatives Seminar

Credit Considerations in Equity Derivatives & Related Hedging Transactions – ISDA Symposium

How to Read ISDA Netting Opinions – ISDA Symposium

Credit Derivatives Operations Training Course

Introduction to Operations Training Course

Credit Derivatives Workshop

ISDA Operations Commitments, Solutions and Beyond – ISDA Symposium

Documenting and Confirming Credit Derivative Transactions Conference Documenting and Confirming Equity Derivative Transactions Conference Documenting and Confirming Exotic Flow Equity Derivatives Conference Documenting Commodity Transactions using the ISDA Documentation Structure Conference Documenting Derivatives Transactions in Emissions Allowances – ISDA Symposium Documenting Interest Rate and Currency Swaps – ISDA Symposium Energy, Commodities & Developing Products Conference Equity Derivatives Documentation Workshop

Latest Developments in Accounting for Financial Instruments Litigation in the OTC Derivatives Market Loan CDS Documentation – ISDA Symposium Property Index Derivative Transactions and ISDA Documentation – ISDA Symposium Second Generation Credit Derivative Documentation Conference Understanding Collateral Arrangements and the ISDA Credit Support Documents Conference Understanding the ISDA Master Agreements Conference Variance Swaps and their Documentation

Conference & Event Locations 2008 The above conferences were held variously in these cities during 2008: Athens Beijing Boston Chicago Dublin Frankfurt Greenwich

Hong Kong Kuala Lumpur London New York Paris Prague San Francisco

Shanghai Singapore Stockholm Sydney Taipei Tokyo Toronto 59

ISDA 2009.indd 59

4/8/09 9:57:15 AM

Copyright © 2009 by International Swaps and Derivatives Association, Inc. 360 Madison Avenue 16th floor New York, NY 10017

ISDA 2009.indd 60

4/8/09 9:57:15 AM