South African over-the-counter credit derivatives market : 2005-2015

Abstract

Credit derivatives played a large role in intensifying losses during the subprime lending crisis, which began in 2007 in the US and spiralled into a financial crisis in 2008. One of the major reasons for this descent into financial crisis was the uncertainty about the exposure of some systemically important financial institutions through their derivative positions, specifically credit derivative instruments such as credit default swaps (CDSs). Using data obtained from the SARB, the study found that prior to the crisis, the size of the South African OTC credit derivatives market was increasing steadily. However, the 2008 financial crisis temporarily stunted this growth, and the size of the market declined. Since 2010, the growth of the market has once again been on an upward trajectory. The study examines recent international and local regulations relating to OTC derivatives and makes policy recommendations for South Africa.