The traditional world of derivatives, consisting of both listed and over-the-counter (OTC) instruments, is undergoing significant change. Clearing of OTC derivatives through central counterparties has grown rapidly over the last decade. The percentage of cleared interest rate swaps, for example, has doubled in the past four years and over half that market is now cleared.

This transformation is slated to continue given the pace and momentum of regulatory reform until upwards of 70 percent of global OTC derivatives activity is cleared

Significant threat to non-cleared OTC market
Non-cleared OTC derivatives create significant value to the economy, from enabling companies and governments to manage risk in their operations, to helping pension funds meet their obligations to retirees. Current regulatory proposals on margin requirements pose a threat to the continued functioning of this vital market segment.

This ISDA paper explains what non-cleared OTC derivatives are, who uses them, why some – but not all – will be cleared, and the impact of the regulatory proposals.