11 May ISDA 1Q15 Derivatives Survey
1Q15 ISDA SURVEY
It’s May 2015, almost 8 ½ years since the Great Credit Crisis began. The ISDA 1Q15 Derivative Survey of market participants. With the Dodd-Frank bills having been passed, procedures have been implemented and processes have changed. So this survey should begin to see those changes bleed through. Let’s see what they look like. What do end-users think?
RESPONDENTS
The ISDA 1Q15 Derivative Survey includes 376 respondents. Respondents did not have to answer every question – only those questions that applied to them. Out of 376 respondents, 286 (76%) answered enough questions to make them statistically significant.
Type of Firm (<- % responded; Number responded #->)
| 31% | Financial Institutions | (118) |
| 22% | Non-Financial Corps | (83) |
| 6% | Governments | (23) |
| 6% | Energy Companies | (22) |
| 11% | Other | (40) |
| 76% | Total | (286) |
Location: Europe (145) and the Americas (191)
Volume
In answer to how much volume a respondent executes
- 22.60% trade 101 – 500 contracts
- 32.15% trade 0 – 100 contracts
- 36.24% trade greater than 500 contracts
Fragmentation
In answer to whether they were impacted by the choices of Swap Execution Facilities (SEFs) and the lack of similarity between local and global laws and non-fungible, noncomparable CCPs:
- 69.4% said they were impacted by fragmentation
- 37.6% said they were not impacted by fragmentation
- 7.9% said no, the market is not fragmenting
If the ISDA 1Q15 Derivative Survey respondents answered “yes” above, they were asked what impact, if any, fragmentation had on their firm’s ability to manage risk:
- 52.4% reported a negative impact
- 4.0% reported a positive impact
- 24.1% believed it had no impact on their ability to manage risk
Liquidity
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, availability of certain products)
| 6% | Liquidity improved |
| 22.6% | Liquidity unchanged |
| 36.2% | Liquidity deteriorated |
| 35% | Not sure/No opinion |
Cost of Hedging
To the question as to whether hedging costs have changed over the past year
| 12% | Costs increased substantially |
| 41% | Increased a little |
| 28% | Not sure/No opinion |
| 3.5% | Decreased a little |
| 0.3% | Decreased substantially |
Question: Has the number of derivatives dealers willing to offer your firm derivatives prices changed over the past year?
| 30.54% | No change in dealers |
| 34.43% | Fewer dealers |
| 26.64% | Not sure/No opinion |
Liquidity
Question: If you believe that liquidity 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 |
| o.82% | Positive impact |
Derivatives usage, risk management & your entity
Question: How important are derivatives in your risk management strategy?
| 53.9% | Very important |
| 35.53% | Important |
| 10.18% | No opinion/Not important |
*Side Question for ISDA to ask: What changes have been made which have helped your Risk Management Strategy. If by, ISDA 1Q15 Derivatives Survey, respondents aren’t increasing their focus on Risk Management what can we do to help them.
Question: In what ways are derivatives important to your firm’s business and investment decision-making? (Check all that apply)
| 66.7% | Manage exposures to improve pricing, operating expenses & returns |
| 41.74% | Hedge exposures in international markets to maintain enhance 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 |
Question: Do you expect the use of derivatives to increase, decrease, or stay the same in 2Q15?
| 16.31% | Expect usage to increase |
| 77.34% | Stay the same/No opinion/Not sure |
| 6.34% | Expect usage will decrease |
Summary
This was the wisdom of Survey respondents. I look forward to viewing how these statistics move forward and the changes the industry makes to become comfortable with those aspects we cannot change. More, later.