Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo released a new paradigm for measuring the size of the global swaps markets, in a speech to DerivCon 2018 in New York.
In his speech, Giancarlo said, “swaps have a problem of large numbers. We have known it for a long time. Sizing the global swaps markets in hundreds of trillions of dollars has done nothing to bring clarity to newspaper accounts, policy discussions in Congress, or regulatory policy setting in the decade since the financial crisis. Rather, it more often confuses the issue and hinders dispassionate consideration and sound policy setting.”
In conjunction with this speech, CFTC Chief Economist Dr. Bruce Tuckman released a paper detailing the new paradigm for a more accurate measurement of the swaps market, specifically focused on its risk transfer function. In the paper, Tuckman explains why notional amount is not a good measure of the magnitude of risk transfer through the global interest rate swap (IRS) markets, and proposes the use of ENNs: Entity-Netted Notional Amounts. Read Tuckman’s paper here.