Interest Rate Derivatives Products and Recent Market Activity in the New Regulatory Framework

Sweeping changes in financial regulation have occurred throughout much of the world following the global credit crisis that began in 2007. Shifts in the regulatory paradigm governing derivatives have been especially dramatic and have already altered the landscape for interest rate derivatives and participants in interest rate derivatives activity. This chapter reviews the products that comprise the global interest rate derivatives market, recent market activity across different products, currencies, and market structures (i.e., exchange-traded interest rate derivatives, non-cleared swaps, and cleared swaps), and the new regulations governing interest rate derivatives in the United States and Europe. The chapter also documents the bifurcation in liquidity for certain non-dollar swaps (especially EUR-denominated swaps) that has arisen as a result of regulatory uncertainties involving the disparate international implementation of recent regulatory changes. A detailed Appendix presents a self-contained overview of the new regulatory framework itself.