Leading regulators, legislators, derivatives market participants, technology and resource providers met in Tokyo last week at the International Swaps and Derivatives Association’s (ISDA) 31st Annual General Meeting (AGM). The ISDA Conference was last held in Tokyo in 2003 and, as Commissioner Mori commented, the derivatives market is now in a very different place.
ISDA, as an organisation, has been driving standards aimed toward enhancing the safety and efficiency of the global derivatives market for over thirty years. Over this period, ISDA and its members have been tremendously successful in standardising processes and practices across the market, ensuring greater economic and legal certainty around derivatives contracts. Awareness of ISDA, and the importance of the work it does, has undoubtedly increased in recent years, at least in part due to Brad Pitt’s overview of ISDA Master Agreements in the recent film The Big Short.
ISDA conferences typically discuss and explore both current and expected market trends, and how derivatives trading may change in the future. The main focus of this year’s AGM was the future of the derivatives market landscape and particularly how to meet the challenges associated with implementing and the standardisation of the margin requirements for uncleared derivatives. The challenge centres on how firms will meet the phased deadlines to repaper clients and implement processes to comply with the regulation. Keith Bailey of Barclays noted how this may be the first G20 regulation that has come into force globally on the same day. While this is true, the rules themselves, their scope and the associated complexities, will differ between jurisdictions. This is something which banks should certainly remain aware of.
With a variety of approaches being discussed it was noted that due to the banks’ lack of capacity, it is for the whole industry to work together to develop solutions. A constant theme throughout the conference was the need for technology providers to develop solutions to assist derivatives market participants with their regulatory challenges – as Scott O’Malia, CEO of ISDA, commented: “automation is the future”. However, to meet the margin requirements, it is not only technology firms who need to support and pave solutions for these organisations. ISDA has been, and will continue, working on developing documentation and methods, such as a protocols, which organisations can use to simplify the process of repapering by implementing industry standard contractual changes which impact a growing number of counterparties. This standardisation was highlighted as key to the future of the uncleared derivatives market by Eric Litvack, ISDA chair, and is widely supported by leading voices in the financial services industry, notably by Jonathan Hunter, RBC Capital. Finally, legal and consulting firms will need to provide advice and assurance around the approaches impacted parties should take, whilst skilled resourcing firms need to be prepared to assist organisations with the delivery and management of change.
With over 600 industry participants attending ISDA’s 31st AGM, including a broad mix of banks, buy-side organisations, technology providers, law firms, market utilities and resourcing firms, conversations were notably collaborative about the need to work together to continue to standardise and optimise the derivatives market. In doing so, the industry should aim to resolve concerns and reduce the costs and charges to end users, bringing uncleared derivatives more in line with the cleared market. There is no doubt that the next time ISDA AGM is situated in Tokyo, the derivatives market landscape will look back on the continued efforts and successes of a decade of change, with a view to tackle the next challenges on the horizon.