In the early days of the interest rate swap market, former Salomon Brothers trader Thomas Jasper remembers, transactions were recorded by hand. “When I was running the swap desk,” he says, “I used to carry my trading book in my breast pocket on one piece of paper.” It was only after the International Swaps & Derivatives Association, which Jasper helped found, created the standard swaps contract known as the master agreement in 1985 that the business began to grow exponentially.
While the master agreement helped bring some order to the market, swaps trading was still opaque. Deals were made over the phone and later by instant message—with no central recordkeeping. Uncertainty over which banks were tied to other banks and investors by swaps deals complicated efforts to respond to the 2008 financial crisis.