ISDA Publishes Discussion Paper on Impact of Electronic Execution Requirements on OTC Markets
The International Swaps and Derivatives Association (ISDA) has published an in-depth discussion and analysis of the impact of electronic execution requirements on over-the-counter (OTC) derivatives markets that were mandated by the Dodd-Frank Act.
ISDA staff and consultants developed the paper, ‘Costs and Benefits of Mandatory Electronic Execution Requirements for Interest Rate Products’, in conjunction with NERA Economic Consulting, which assisted with research and analysis.
The paper explores and analyses whether the market structure being developed by the Commodity Futures Trading Commission (CFTC) to implement these requirements will meet the CFTC’s key goals: increase the efficiency of the market by reducing transaction costs, improving access to markets and increasing transparency. The paper also assesses the costs and expenses that market participants and ultimately end-users are likely to bear as a result of the mandate’s implementation.
The major findings are:
“Our research and analysis indicate that the electronic execution mandate will result in higher bid-offer spreads and significant costs, most of which will be borne by end users,” said Conrad Voldstad, ISDA chief executive officer (CEO). “There is little to suggest that it may benefit any market participants. There is, to the contrary, much to suggest that it will take away users’ choice, create inefficiencies and discourage innovation.”