OTC derivatives contracts that are not cleared play a crucial role in helping a wide range of financial market participants manage risk, and eliminating them could be problematic for the entities that use them, industry organization the International Swaps and Derivatives Association said in a recently-released report.
The organization noted the key importance that these risk management tools have in its study, stating that "they are used to manage the risk of changing commodity and energy prices and interest rates," according to IFR Asia.
The report added that "they are used in asset/liability management and to risk manage cash flows and capital raising activities."
The ISDA noted that non-cleared OTC derivatives are used in the vast majority of industries, and help to support governments and businesses in their efforts to effectively manage risk. The industry organization also stated that these financial instruments support worldwide economic growth by making it easier for lending institutions to extend credit to consumers and organizations.
The report warns about the potential impact of derivatives regulations that eliminate these non-cleared financial instruments, stating that "any impairment to the liquidity of these tools will affect economic growth, capital investment and job creation," IFR Asia reports.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis