The International Swaps and Derivatives Association, Inc. (ISDA) today published the following statement regarding negative interest rates and the ISDA 2014 Collateral Agreement Negative Interest Protocol:
Negative interest rates have become increasingly common in the current environment. The ISDA Board strongly supports the use of market rates, whether positive or negative, for over-the-counter derivatives transactions, reflecting best practice in broader financial markets.
ISDA has taken a leading role in addressing negative interest rates to ensure economic consistency with wholesale funding markets and cleared over-the-counter derivatives. Any lack of consistency may have a detrimental effect on market price transparency, and derivatives market liquidity may be adversely affected.
For this reason, ISDA welcomes the fact that more than 220 legal entities from both the dealer and end-user communities have now signed the ISDA 2014 Collateral Agreement Negative Interest Protocol. The Protocol, published in May 2014, was designed to provide certainty about how the payment of interest on posted collateral is calculated in a negative interest rate environment under ISDA collateral documentation. It enables parties to amend the terms of certain ISDA-published collateral agreements to account for negative interest amounts on cash collateral.
