Derivatives trade group names pioneer Voldstad CEO
NEW YORK, Nov 19 (Reuters) - The International Swaps and Derivatives Association said on Thursday it has appointed derivatives pioneer Conrad Voldstad as chief executive officer of the derivatives trade body.
Voldstad, who helped build the derivatives businesses of JPMorgan (JPM.N) and Merrill Lynch in the 1980s and 1990s, will replace Robert Pickel, who has held the position since 2001. Pickel will continue at ISDA as executive vice chairman.
The appointment comes as lawmakers globally seek to bring the $450 trillion, privately traded derivative markets under the watch of regulators and move the majority of the contracts to central counterparties.
Derivatives have been blamed for creating systemic risk due to the maze of leveraged exposure the contracts create between large financial institutions. Some say the contracts were a factor leading to the financial crisis.
Voldstad, 59, also known as "Connie", said he is looking forward to the new role.
"We're working on a number of things. In addition to public policy we are continuing to develop risk management processes for counterparty credit risk, and to work on improving operational efficiencies and transparency in the markets," he said in an interview.
"Connie brings direct and relevant experience with his years of working in the industry to this association," said Eraj Shirvani, ISDA Chairman and head of fixed income Europe, the Middle East and Africa at Credit Suisse.
Voldstad was the first person to head JPMorgan's global swap group, its first dedicated derivatives group, which traded interest-rate and currency derivatives.
After leaving JPMorgan in 1988 Voldstad held various positions at Merrill Lynch, where he created the first AAA-rated derivative product company, a structure that was later copied by many banks.
Voldstad was also part of a six-person committee who worked with members of Long term Capital Management to unwind the fund after it was bailed out by banks in 1998 because it was unable to meet margin calls on leveraged exposures.
Unwinding the fund included tearing up around $1 trillion of interest rate derivatives.
"Working on LTCM certainly impressed on me that the absolute size of notional positions could be reduced in a significant fashion at a very modest cost to the industry. I think that will help me work with the industry to continue to manage the absolute numbers of notionals," Voldstad said.
The industry has made it a priority to simplify exposures by tearing up offsetting contracts, and has eliminated around $30 trillion in trades as part of this process.
Gross volumes in interest rate and currency derivative volumes have surged to $414 trillion from $865 billion in 1987, while volumes in credit derivatives, a newer market, have grown to $31 trillion from $631 billion in 2001, according to ISDA.
Privately-traded equity derivatives have also jumped to almost $8.8 trillion, from $2.3 trillion in 2002.
Voldstad's appointment comes amid debate over the role derivatives play in managing financial risk, with some critics charging that some contracts can do more harm than good.
Credit default swaps, which are used to protect against a debt default or speculate on credit quality, have come under the most criticism for their role in helping fuel the explosion in risky mortgage loans, and leading to the collapse of American International Group (AIG.N).
Defendants of the industry say derivatives play a vital role for investors seeking to manage risk. They say initiatives including central clearing, trade reporting and effective collateral management can offset its dangers.
"When central clearing and other initiatives are in place I think we will see further growth in areas including credit default swaps," said Pickel. "People have talked about the need to manage credit risk effectively and one of the most powerful tools for them to do that is to use credit default swaps."
(Editing by Andrew Hay)
