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====A word on industry associations==== | ====A word on industry associations==== | ||
=====Sell-side===== | |||
ISDA, which publishes the ISDA, ''was'' the “International Swap Dealers Association''s'', Inc.” — interesting plural, that — but in any case, outwardly a ''[[sell-side]]'' industry association. Sometime between 1992 and 2002, it rebranded itself as the “International Swaps and Derivatives Association, Inc.”: singular, at the same time more unitary and more inclusive sounding, but still in spirit the same old ISDA, stake-held predominantly by the largest broker-dealers on the face of the Earth. | ISDA, which publishes the ISDA, ''was'' the “International Swap Dealers Association''s'', Inc.” — interesting plural, that — but in any case, outwardly a ''[[sell-side]]'' industry association. Sometime between 1992 and 2002, it rebranded itself as the “International Swaps and Derivatives Association, Inc.”: singular, at the same time more unitary and more inclusive sounding, but still in spirit the same old ISDA, stake-held predominantly by the largest broker-dealers on the face of the Earth. | ||
It may have aspirations to conquer the world — increasingly, it seems hell-bent on doing so, encroaching on the commodities, carbon, securities financing and crypto domains — but for now ISDA remains a “dealer-community” association, largely devoted to the swap. | It may have aspirations to conquer the world — increasingly, it seems hell-bent on doing so, encroaching on the commodities, carbon, securities financing and crypto domains — but for now ISDA remains a “dealer-community” association, largely devoted to the swap. | ||
=====Buy-side===== | |||
These days the “buy-side lobby” is bigger, more organised and better represented than it used to be, with the following associations representing its interests: | |||
{{plainlink|https://www.aima.org|AIMA|}} (the Alternative Investment Management Association)<br> {{plainlink|https://www.efama.org|EFAMA|}} (the European Fund and Asset Management Association) <br> | |||
The {{plainlink|https://www.managedfunds.org|MFA|}} (the Managed Funds Association) — not to be confused, by the way, with the Fund Management Association of Kenya — and<br> | |||
The {{plainlink|https://www.theia.org|AI||}} (the Investment Association). | |||
====Buy-side and sell-side==== | ====Buy-side and sell-side==== | ||
We will have more to say about this [[The bilaterality, or not, of the ISDA|in later essays]], but for the time being note that in most swap transactions there is a “sell-side” dealer and a “buy-side” end user to an {{isdama}}. There is, it is true, a small class of “inter-dealer” swap contracts, but these generally do not create quite the same excitement as do those between dealers and their customers. | We will have more to say about this [[The bilaterality, or not, of the ISDA|in later essays]], but for the time being note that in most swap transactions there is a “sell-side” dealer and a “buy-side” end user to an {{isdama}}. There is, it is true, a small class of “inter-dealer” swap contracts, but these generally do not create quite the same excitement as do those between dealers and their customers. | ||
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Three important things to bear in mind about swap [[dealer]]s: | Three important things to bear in mind about swap [[dealer]]s: | ||
{{l1}}'''They aspire to be market neutral''': Typically dealers provide market exposure to customers without taking a market position themselves.<li> | {{l1}}'''They aspire to be market neutral''': Typically dealers provide market exposure to customers without taking a market position themselves.<li> | ||
'''They delta-hedge''': since a [[swap]] is inherently a principal-to-principal contract and not an [[Agent|agency]] arrangement, and entering ''does'' change the dealer’s market position, the dealer will execute offsetting [[delta-hedge]]s in the market to “flatten out” its position. It has quite a lot of flexibility in how it does this.<li> | '''They delta-hedge''': since a [[swap]] is inherently a principal-to-principal contract and not an [[Agent|agency]] arrangement, and entering ''does'' change the dealer’s market position, the dealer will execute offsetting [[delta hedge|delta-hedge]]s in the market to “flatten out” its position. It has quite a lot of flexibility in how it does this.<li> | ||
'''Dealers are regulated''': Because they are concentrated points of risk taken on by their customers, dealers are heavily regulated, both in terms of their conduct of business — with whom they can do business, and on what terms, and prudentially — in how they manage customer and market risk and how much capital they must hold. | '''Dealers are regulated''': Because they are concentrated points of risk taken on by their customers, dealers are heavily regulated, both in terms of their ''conduct of business'' — with whom they can do business, and on what terms, and ''prudentially'' — in how they manage customer and market risk and how much capital they must hold. | ||
Some swap customers are regulated, in particular those who manage retail investment funds — but generally the regulation is there to protect the “[[Ultimate client|ultimate client]]” a mythical grandpop who wants nothing more than to dandle his granddaughter on his knee while she blows upon a dandelion, and warm beams of sunshine bathe them all in holy light. </ol> | |||
''If'' dealers fail, it tends to be more or less apocalyptic for the market. But the market is getting better at managing the stress of dealer failures ([[Credit Suisse]] caused a lot less dislocation than did [[Lehman]]), and in truth [[dealer]]s do not fail that often. | ''If'' dealers fail, it tends to be more or less apocalyptic for the market. But the market is getting better at managing the stress of dealer failures ([[Credit Suisse]] caused a lot less dislocation than did [[Lehman]]), and in truth [[dealer]]s do not fail that often. | ||
===The preamble=== | |||
The {{{{{1}}}|preamble}} is just the loosener before things get properly going, and there is not a lot to see. It has not changed a lot between the {{1992ma}} and the {{2002ma}} (nor indeed, from the {{1987ma}}, except that the {{isdaprov|Single Agreement}} clause got promoted from a casual remark during the warm-up, in the {{1987ma}}, to the first searching delivery of the first over.<ref>Cricket metaphor. To our American readers, we would say sorry, except that we are not. There will be cricket analogies throughout.</ref> | |||
The {{ {{{1}}}|preamble}} is just the loosener before things get properly going, and there is not a lot to see. It has not |