Isda hits back at call for more derivatives regulation

The International Swaps and Derivatives Association (Isda) has hit back at calls for more derivatives regulation in the wake of Enron’s demise. “Advocating regulation for regulation’s sake is bad policy, and could severely affect the US role in global financial activity,” said Robert Pickel, Isda chairman, in a letter to the Wall Street Journal .

Pickel said Enron’s collapse was not caused by over-the-counter (OTC) derivatives trading and that the financial system remains sound.

“If OTC derivatives did not cause the bankruptcy and the bankruptcy does not pose a risk to the markets, the logical conclusion is that there is no argument for additional derivatives regulation."It is unclear... how additional regulation of Enron’s derivatives trading operations would have prevented or mitigated Enron’s financial difficulties,” said Pickel in the letter.

He added that Enron’s trading platform, EnronOnline, provided an innovative way of trading derivatives in the OTC market, and is still a viable trading business – as demonstrated by recent interest in its acquisition by other market participants.

Pickel also pointed out that Isda Master Agreements - the legal documents used in most OTC derivatives trades - have helped the markets run smoothly since Enron’s collapse, due to their robust netting and collateral provisions.