ISDA published the results of a new survey that highlighted the potential for growth in the derivatives markets in Asia. However, the pace of growth will depend on multiple factors such as the liberalization of local financial markets and the support of regulators and policymakers in addressing key industry issues, including the enforceability of close-out netting. Resolving legal and regulatory uncertainties related to derivatives usage and trading will also be important.
Netting was ranked as the most important factor that will determine the future pace of growth of derivatives trading in Asia. This is because of the critical importance of netting in the mitigation of credit risk. Asia's share of global trading in both foreign exchange and interest rate derivatives is widely expected to increase, with Singapore and Hong Kong being the largest regional hubs. However, three of the fastest growing emerging markets in Asia—China, India, and Indonesia—do not yet have legal certainty on netting; therefore, there is clearly work to be done on this front. ISDA will continue to make the case for netting and to ensure that legislators have all the support and resources they need to make progress. To that end, at its Annual General Meeting in Hong Kong, ISDA launched its latest whiteboard animation, which explains how netting works and why it contributes not only to safe and efficient markets but also to sustainable economic growth.
ISDA has observed some encouraging signs, with Chinese, Indian, and Indonesian authorities taking their own individual steps toward recognition of netting in recent years. These three countries could be in the top five global economies by 2030, according to economists’ estimates, so ISDA is very keen to make sure the progress continues. This is not a new initiative for ISDA. ISDA has been working with the authorities worldwide for more than 30 years and have so far published netting opinions on more than 70 countries. In October 2018, ISDA published an update to the Model Netting Act, which provides a template for legislation that can be applied to markets where netting is not yet recognized.
The ISDA efforts extend far beyond the largest markets, with constructive efforts also underway in numerous frontier markets, including Saudi Arabia, Bahrain, Vietnam, Ghana, Nigeria, Panama and Latvia. In each country, ISDA takes the same methodical approach, working with local legislators to overcome the unique challenges that exist. The ISDA survey shows that this is an incredibly exciting time for derivatives markets in Asia. Trading volumes are growing faster than global averages, infrastructure is developing, and, gradually, progress is being made on netting. ISDA is working to maintain the momentum, so that the full growth potential can be unlocked across Asia.
Keywords: International, Asia Pacific, Banking, Securities, OTC Derivatives, Netting, Credit Risk, ISDA
EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).
FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.
IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.
BIS announced that it will establish new Innovation Hub centers across Europe and in North America in cooperation with member central banks.
FED updated the reporting form for FR 2052a, which is used to monitor the overall liquidity profile of certain supervised institutions.
PRA published a statement that sets out its views on certain amendments made to Capital Requirements Regulations (CRR and CRR2) via EU Regulation 2020/873 (CRR "Quick Fix"), including some guidance for firms.
PRA is proposing (CP5/20) an approach for publication of Solvency II technical information after the end of the transition period for Brexit.
FASB announced that SEC has upgraded the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system to Release 20.2.
The Climate Financial Risk Forum (CFRF), which is a joint climate risk forum of FCA and PRA, published a guide written by the industry for the industry to help firms approach and address climate-related financial risks.
IAIS published an application paper on liquidity risk management for insurers.