Rate, Credit-Default Swaps Reduced by $200 Trillion, ISDA Says

More than $200 trillion in notional value of interest-rate and credit-default swaps have been eliminated from the over-the-counter derivatives market by canceling offsetting trades, the International Swaps & Derivatives Association said.

So-called tear-up agreements are used to get rid of redundant trades in the privately negotiated market and help lower credit risk by paring the number of transactions that must be accounted for on a daily basis. Rate swaps have been reduced by $120 trillion and credit swaps by $82 trillion as of the end of 2011, ISDA said in an e-mailed statement today.

The trade and lobbying group for users of OTC derivatives said on an adjusted basis interest-rate swaps total $262 trillion. The adjusted figure eliminates double-counting of trades that have been processed by clearinghouses, ISDA said. More than 53 percent of rate swaps had been backed by a clearinghouse as of Dec. 31, while 10.6 percent of credit swaps have been cleared, the group said.

“The increase in central clearing, the effectiveness of netting and collateral, and portfolio compression all work toward the same goal -- reducing counterparty credit risk,” Robert Pickel, chief executive officer of ISDA, said in the statement.