Reforms to the $708 trillion private derivatives market are reducing systemic risk while some rules need more work before being implemented, said Stephen O’Connor, chairman of the International Swaps and Derivatives Association.
“There is today serious concern about some of the other policies underway” related to the Dodd-Frank Act that toughens oversight of the market, O’Conner, Morgan Stanley’s global head of over-the-counter client clearing, said at ISDA’s annual meeting today in Chicago. He cited differences between new swaps rules in Europe and the U.S., known as extraterritoriality, and mandated electronic execution for swaps as issues the industry wants to address.
The reforms are aimed at one of Wall Street’s largest profit centers. The largest dealers make a collective $30 billion a year by executing fixed-income swaps, such as for interest rate and credit risk, with their customers, compared with $3 billion to $5 billion a year from trading fixed-income futures, according to consulting firm Oliver Wyman.