Fragmentation Stalls Growth in Derivatives Market


It’s May 2015, almost 8 ½ years since the first crack in the wall began when late monthly payments on new mortgages (30 years) began.  And so we are now 8 ½ years on, bills have been passed; procedures implemented and processes have changed.  ISDA’s SURVE OF ISSUE & TRENDS FOR THE DERIVATIVES END USER COMMUNITY FOR APRIL 2014.


The survey includes 376 respondents.  Respondents did not have to answer every question only those questions which applied to them.

Type of Firm:     31.4%    Financial Institutions     (118)

                                22%        Non-Financial Corps       (83)

                                6%          Governments                    (23)

                                5.8 5%   Energy Companies          (22)

                                10.64% Other                                     (40)

Location:             87.07% came from Europe and the Americas (145: Europe); (191: No. America)


22.60% trade between 101 –      500 contracts

32.15% trade between 0 –          100 contracts

36.24% trade more than               500 contracts


Fragmentation along geographical lines and lack of confluence between local law: :

69.4% said yes

37.6% said no

7.90% said no, the Market is not fragmenting


If answered “yes” above, what impact, if any, is it having on your firm’s ability to manage risk?

52.4% Negative Impact

4.00% Positive Impact

24.1% No Impact


Questioned as to whether the respondent  experienced any changes in Liquidity over the past year (.i.e.: number of dealers Width & Depth of bid/ask spreads or availability of certain products.), showed a scatter of replies

 6%                 Liquidity improved

22.61%                  Liquidity unchanged

36.23%              Liquidity Deteriorated

35%                        NOT SURE/ NO OPINION



To the question have Hedging costs changed over the past year, ISDA received replies as follows:

57%                        Costs Increased Substantially ( 12.6%), Increased a Little (40.5%)

28%                        Not Sure/ No Opinion

3.81%                    Decreased a little (3.52%), Decreased substantially (.29%)

Has the numberof derivatives dealers  willing to offer  your firms derivatives prices changed over the past year?

91.61%                  No change in dealers (30.54%)

34.43%                  Fewer dealers (34.43%)

26.64%                  Not sure, no opinion (26.64%)



If you believe that liquidty has deteriorated, then what impact if any, is it having on your ability to manage risk?

                                64.8%                 Negative Impact

                                34.33%                  No Impact/ No opinion

                                .82%                      Positive Impact





How important are derivatiives to your risk Management Strategy?

                              53.9%                  Very Important

35.53%                  Important

10.18%                   No opinion / Not Important

In what ways are derivatives important to your firm’s business and investment decision-making?  (Ocheck all that apply)


66.7%            Manage Exposures to improve pricing, operating expenses & Returns

41.74%            Hedge Exposures in international markets to maintain ehance our competitiveness

37.84%           Reduce Financing costs & Managing the cost of capital to invest in the business

27.63%           Hedging risks of new activities and investments can invest for growth



Do you expect  the use of derivatives wi increase, decrease or stay the same in the 2Q15.

16.31%                  Think usage Increases

                               77.34%                  Stay the same/No opinion/Not Sure

6.34%                    Think usage Decreases


The was the wisdom of the ISA respondents.  I look forward to hearing the FIA’s SEF Trackers.  SEF’s have been creating bit of Execution Fragmentation making it difficult to gain iany traction.  But more on that in another blog


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