to note that there is as yet no broad consensus on how such a framework would be best implemented in order to provide timely and relevant information. third, who should take action in this direction? it should be acknowledged that the reduction of systemic risk is not an objective for central banks exclusively. here, i would like to praise the joint initiatives of market experts from a number of leading institutions around the world in response to calls from the central bank community : the reports by the counterparty risk management policy group 11 and the recent report released by the institute of international finance special committee on liquidity risk. both documents call for “ greater transparency and an incremental collaborative mechanism between the public and private sector in contingency planning ”. they also draw attention to the fact that standard methods for valuing contracts with defaulting counterparties under the close - out netting provisions of master agreements for derivatives transactions could be difficult to implement during periods of market stress. as noted by the basel committee on payment and settlement systems, market associations such as isda are well placed to develop common understandings regarding the use of these methodologies, taking into account existing market practices and laws. in addition, there is also scope for more private and public sector cooperation on stress - testing and gathering data that are relevant for regulatory purposes concerning the proper evaluation of systemic risk. for instance, the work on stress - testing by regulators, central banks and international organisations ( such as the imf ’ s financial sector assessment programme activities ), has revealed the difficulties for banks to introduce into their internal models a ) scenarios which affect systemic liquidity, or b ) assumptions on the behaviour / failure of large market participants under stress. fourth, how can we move forward? on the one hand, policy - makers are increasingly acknowledging the risk of a certain trade - off between liquidity and transparency in the credit derivatives market when the transparency framework is inappropriately designed. this can materialise under normal conditions but also under stressed conditions. to avoid the emergence of this trade - off requires a careful understanding of the market microstructure and its functioning, in order to build a transparency framework which can be adapted to the global, dynamic and complex nature of the credit risk transfer market. on the other hand, expectations with regard to market - driven initiatives are growing, which is a point that i will consider again later. in any case, it is crucial to bear in mind that the problem is not credit derivatives instruments per se, but how they are used, and

jean - claude trichet : some reflections on the development of credit derivatives keynote address by mr jean - claude trichet, president of the european central bank, at the 22nd annual general meeting of the international swaps and derivatives association ( isda ), boston, 18 april 2007. * * * ladies and gentlemen, it is a privilege and pleasure to be here at the 22nd isda annual general meeting in boston in front of such a distinguished global audience. looking back at what is already history, i would like to express my gratitude to isda for its substantial contribution towards the smooth introduction of the euro on 1 january 1999. the conversion of the original 11 national currencies into one single currency, the euro, represented an enormous operational and legal challenge that had significant implications for the global markets, particularly for the cross - currency and interest rate derivatives markets. isda played an important role in contributing to the development of the legal framework which ensured the continuity of contracts, both in the european union and in the united states. i would also like to mention the crucial role that isda currently plays in promoting the smooth functioning of all derivatives market segments, especially by mitigating legal risks and supporting industry - driven initiatives to promote market integrity and efficiency. i will come back to this point later. the main theme of my speech today is credit derivatives, in their different forms. the credit derivatives market segment has probably been one of the most innovative and fastest - growing in recent years. most notably, during the last mid - year review, isda recorded a 52 % rise in the notional outstanding amount of credit default swaps, which rose to $ 26 trillion. moreover, according to the securities industry and financial markets association, the issuance of collateralised debt obligations almost tripled between 2004 and 2006, amounting to $ 489 billion in 2006. the rapid development and the share of this market segment is a very important feature of today ’ s global finance, and i would like to share with you some reflections on the developments of credit derivatives. my objective is twofold : first, i would like to emphasise the importance of central banks ’ monitoring of developments in credit derivatives in terms of three interlinked perspectives : 1. the conduct of monetary policy, 2. financial stability and 3. market standards. second, i would like to take advantage of your agm to make a call in favour of market - driven initiatives that may lead to greater transparency. 1 ) credit derivatives and the conduct of