The International Swaps and Derivatives Association (ISDA), which ostensibly regulates derivatives and swaps, felt compelled to issue guidelines for closing out derivative contracts last week. In a framework published June 27, ISDA recommends that firms “are adequately prepared for any potential future stress events.” “Recent stress events have drummed home that terminating a portfolio of derivatives trades is now much more complex as a result of regulatory reforms,” ISDA insists.
This unusual step is seen as reflecting a concern (panic?) that the global derivative bubble is ready to burst, perhaps unleashed by a “geopolitical event,” as the European Central Bank recently warned, or by a stock market collapse, or both.
