The International Swaps and Derivatives Assocation (Isda) has said it “applauds and supports” a letter from 17 investment banks to Timothy Geithner, president of the Federal Reserve Bank of New York, which commits them to improving the efficiency of the equity derivatives market.Robert Pickel, Isda’s chief executive, said: “[We] look forward to helping this group and the industry more broadly by continuing to bring increased standardisation and automation to key product areas and processes.” The letter commits many of the biggest participants in the market to work towards standardised documentation, electronic processing and faster confirmation times.
The banks said they will make it their “top priority” to create master confirmation agreements for equity derivatives, working closely and speedily with Isda. They aim to confirm all trades made electronically within five working days, and to confirm new (or more bespoke) transactions within 30 calendar days.
From the highest levels of July to September 2006, each bank pledged a 25% reduction in the volume of its trades outstanding for over 30 days by February 2007. They also set a target to complete and amend agreement templates on share and index variance swaps for Europe, the US and Asia by January 30. These would be accompanied by European client templates for index and single-share options and swaps by March 31. By this time, the banks also plan to be using computerised processing for all equity derivatives trades that are eligible for electronic processing.
The letter follows a meeting hosted by the Federal Reserve Bank of New York in September, when dealers and regulators reviewed progress on strengthening the infrastructure of the credit and equity derivatives markets. The letter said equity derivatives transactions took the longest time to confirm of all derivatives trades. Isda also believes equity derivatives represent the most diverse segment of the market as a whole. In September, the industry body valued the outstanding notional value of over-the-counter equity derivatives transactions at $6.4 trillion.
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