Nearly nine out of ten OTC derivatives users believe the instruments are important to risk management strategies, according to a new International Swaps and Derivatives Association (ISDA) survey.
ISDA released the findings on the eve of its annual general meeting in Munich this week, showing there is still a need for OTC derivatives despite new regulation in the US and Europe.
“As the OTC derivatives market continues to evolve amidst significant changes, it is clear that end-users around the world want and need the ability to use these instruments to manage the risks arising from their business and financing activities,” Stephen O’Connor, ISDA chairman, said.
The survey also found more than three quarters expect to increase or maintain their current level of derivatives activity during Q2 2014. Only a small fraction of respondents said they expected their use of OTC derivatives to decrease.
About 80% of respondents believe regulation is increasing administrative burdens and 61% believe it is raising costs.
However, the majority of respondents (57%) agree the financial system is safer today than in the past, with tighter credit risk management identified as the top factor (86%), followed by reduction of leverage (76%) and capital requirements (79%).
Three quarters of respondents also believe the new electronic trade execution requirements for OTC derivatives in Europe and the US will have a positive effect on transparency.
Almost all respondents agree market fragmentation is occurring along geographic lines as a result of the regulation, which 61% believe is negatively impacting their firm’s ability to manage risk.
A total of 245 firms responded to the survey, with 42% being non-financial corporates and 49% being financial institutions, including asset managers.