ISDA Rolls Out Standardized Interest-Rate Swap Contract

Group seeks to standardize OTC market in the wake of Dodd-Frank.

Users of over-the-counter derivatives may now use an interest-rate swap contract with preset terms as the industry lobby group seeks to standardize the $379 trillion market. The contract, which the International Swaps and Derivatives Association developed with the Securities Industry and Financial Markets Association, has pre-agreed terms including on coupons and payment dates, according to a press release distributed today at ISDA’s annual general meeting in Singapore. It will initially be available in six currencies and at nine maturity points from one to 30 years.

“This gets everyone on the same page, all trading the same thing,” said Stephen O’Connor, ISDA’s chairman. That’s “better for liquidity, better for compression.”

Banks, hedge funds and asset managers are adapting to changes mandated by the Dodd-Frank Act passed by Congress in 2010, including a requirement to process most swaps with a clearinghouse to cut counterparty risk. There were $639 trillion in over-the-counter derivatives contracts outstanding as of June 30, while the notional value of interest-rate swaps totaled $379 trillion, according to the Bank for International Settlements.


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