Rate swap pricing as competitive as govt bonds-ISDA

NEW YORK, Nov 9 (BestGrowthStock) – Privately traded interest rate
swaps are already very liquid and transparent as the contracts
are offered at consistent prices by major dealers, according to
a study by derivatives trade group the International Swaps and
Derivatives Association.

ISDA, which represents the largest banks and asset managers
in the industry, said it conducted a test in which three large
firms sought price quotes on five different types of plain
vanilla interest rate swaps from large dealers who were unaware
of the test, in order to determine the contracts’ liquidity and

In each case the swaps were deemed to be liquid and pricing
was competitive, ISDA said.

“Arguably, the competitiveness of the generic swap market
can be viewed as similar to the competitiveness of the U.S.
government bond market,” Conrad Voldstad, Chief Executive at
ISDA said in a release.

Regulators are forming rules that will require all
standard derivatives to be centrally cleared and traded on
electronic trading platforms in an effort to boost transparency
and reduce risks from the contracts.

The market has been criticized for being opaque and
allowing dealers to charge a larger spread from trading the
contracts than they would otherwise be able to if the contracts
were traded on exchanges.

ISDA denies, however, that the market is opaque or that it
allows banks to generate higher margins than they would
otherwise make.

The test “suggests that the profitability of interest rate
swap customer flow for counterparties with collateralized swap
documentation is extremely modest,” ISDA added in a statement.

In each case the gap between the best and worst quotes
offered for a contract was between zero and 1.3 basis points
and the average difference was 0.38 percent, Duncan Hennes,
principal at investment advisory and risk consulting firm
Atrevida Partners, which conducted the test on behalf of ISDA,
said in the release.

Quotes offered by the dealers were also for the large part
inside of prices quoted on trading platforms, and were made
within seconds of each enquiry, ISDA said.

Interest rate and currency derivatives form the largest
privately traded derivatives market, with around $434 trillion
in outstanding gross volumes, according to ISDA data.
(Reporting by Karen Brettell; Editing by James Dalgleish)

Rate swap pricing as competitive as govt bonds-ISDA