A synopsis of the headlines in the derivatives industry from the last week.
US news
ICE shifts ISDAFIX calculations
The InterContinental Exchange (ICE) is changing the way it computes ISDAFIX in an attempt to bolster market confidence in one of the key benchmarks for the interest rate swaps market. From mid-February it will publish rates based on tradeable quotes rather than submissions by a panel of banks.
The move is a key plan in ICE’s efforts to strengthen the integrity of the rates, which serve as main benchmarks and underpin thousands of contracts in the $400tn over-the-counter (OTC) swaps market.
Global regulators have sought to remove conflicts of interest and enhance the governance as well as accuracy of several benchmarks that provide critical yardsticks for opaque and thinly-traded markets. This has led to banks stopping using widely-used market benchmarks, such as ISDAFIX, which provides the average prices at which investors would buy and sell benchmark euro, sterling and US dollar-denominated swaps.
ICE took over administration of the rate from the International Swaps and Derivatives Association (ISDA) last year.
Source:
http://www.ft.com/cms/s/0/e778d3d6-a56e-11e4-ad35-00144feab7de.html?siteedition=uk#axzz3PrW95peL
European news
A group of 10 European countries have reaffirmed their pledge to introduce a financial transactions tax (FTT) as scheduled next January. It has not been an easy ride.
Finance ministers from Austria, Belgium, Estonia, France, Germany, Italy, Portugal, Slovakia, Slovenia and Spain, renewed their commitment to keep to the timetable while Greece, which had been one of the supporters, was not a signatory to the statement. The ministers aim to “streamline future work methods” to implement the tax on schedule and also called on European institutions including the Commission to be “more involved in the work”, particularly discussions on “a technical level”.
The countries are working under the principle of “enhanced cooperation”, which requires the support of at least nine countries. The European Commission’s original FTT proposal, first tabled in 2013, was not agreed amongst the full 27 member states so 11 countries pursued the levy separately. The major stumbling blocks to date include which derivatives to capture and the extraterritorial scope of the tax.
Source:
http://www.efinancialnews.com/story/2015-01-27/ten-eu-states-issue-fresh-support-forftt
Global news
ISDA pushes for a consistent CCP recovery framework
The International Swaps and Derivatives Association has published a paper proposing consistent recovery and continuity frameworks for central counterparties (CCPs).
The proposals are in line with the recommendations made by the Committee on Payments and Market Infrastructures and the International Organisation of Securities Commissions in October 2014. They include a portfolio auction of the defaulted clearing member’s portfolio, limited cash calls to solvent clearing members, loss-allocation mechanisms in the form of a pro-rata reduction of unpaid obligations of the CCP, and consideration of a partial tear-up of contracts to re-establish a matched book.
ISDA believes the recovery of a CCP is preferable to its closure and advocates that recovery efforts should continue so long as the CCP’s default management process is effective, even if pre-funded resources have been exhausted. If the process hasn’t been successful in re-establishing a matched book – signalled by a failed auction – the CCP may have to consider the closure of the clearing service. At this point, it is likely that authorities will be considering whether this should trigger a resolution.
Source:
http://development.derivsource.com/articles/isda-proposes-ccp-recovery-and-continuity-framework
