ISDA: the “S” seems to stand for “sneer” | FT Alphaville

ISDA: the “S” seems to stand for “sneer”

We’ve been curious for a while about the media.comment blog at the International Swaps and Derivatives Association, which declares its mission thus:

media.comment addresses mainstream business and financial media coverage of the derivatives industry. Our hope is that media.comment will help lead to a more informed debate and understanding of the OTC derivatives markets for all our audiences. Reader thoughts and ideas are welcome.

So, since we’ve been asked, our thoughts and ideas, as readers, are that media.comment does nothing whatsoever to encourage a more informed debate and understanding of the OTC derivatives market. In fact, it does the opposite: it betrays an insecure industry organisation, obsessed with its public profile, struggling to communicate with a broad spread of onlookers, and which resorts, in the weakness of its thought leadership, to sneering and attempted intimidation.

Does FT Alphaville sound like a wounded target here? Nah. We just want to stand up for the WSJ.

Today we were treated to two news stories in two newspapers on one topic:  the process for determining whether a credit event has occurred with respect to Greek sovereign CDS.

On the one hand, there’s The Washington Post:  “For Greece, a critical conference call between London and New York.” (A follow-up story is here.) On the other hand, there’s The Wall Street Journal’s “Hushed Up: Secret Panel Holds Fate of Greek CDS.”

An important part of the credit event process – and an important element in each story – are the ISDA Determinations Committees (DCs).  The DCs are 15-member panels of representatives from banks and investment firms.  A supermajority (12 of 15) of each DC’s members is required to make a determination.  Here’s how the Post describes the process and the DCs:

Etc, etc. Click the link and read the Post stuff for yourself.

Contrast this with the Journal’s take.  First, there’s the headline about a “Secret Panel.”  The DCs are said to be “secretive” and “rarely elaborate on decisions.” “No outsiders can participate in the meeting…No transcript will be made public. When a decision is announced, expected before Monday, the committee doesn’t have to provide an explanation. There is no opportunity for investors to appeal.”  Critics “question the impartiality of the process.”

It’s a bit of a mystery why the story characterizes the process as so “secretive.”  The names of the firms on the DC are public, as are their votes.  The process by which the DC members are selected, and the rules governing the DCs, are also public.  Their decisions are publicly announced.  At times, public explanations for those decisions are provided, but often this does not appear to be necessary (such as when the vote is 15-0).

In addition, the process, as the Washington Post article notes, was built to address conflicts of interest.  The credit event/DC process has worked extremely well for 3+ years.  It has handled dozens of credit events without incurring a single legal challenge.  If a supermajority isn’t reached, the decision goes to a panel of outside experts.  A supermajority has not been reached only twice in all the times the DCs have agreed to consider a question.

In sum, we think the credit event/DC process is fair, transparent and well-tested.  There’s simply no evidence to the contrary.  Perhaps after today this non-secret secret will be a secret no more.

Now, without even beginning to debate whether the Isda Determinations Committees are true/fair/transparent/whatever, what we can say is that this is truly awful PR. ‘You are idiots who don’t understand us’ is not a credible comms policy.

There are echos here of Clinton’s instant rebuttal policy concerning election year attacks — an approach subsequently adopted by Tony Blair’s Labour Party in the 90s. But the current and future state of the CDS market is not about gladiatorial politics.  It is about a complex, jargon-ridden and relatively immature branch of the financial markets winning acceptance in a markedly distrustful environment. It calls for a PR hug, not the finger.

We could go inside baseball at this point and explain how journalists, while they compete, daily, also hunt in packs and protect their own when under attack; by doing their best to undermine and intimidate reporters tackling the tricky area of CDS, Isda risks a violent payback if and when the CDS sector gets into serious trouble.  But that’s for another day. Our guess here is that right now the Isda press office is still at Comms Level 1 on all this…

Related links:
ISDA coverage — FT Alphaville