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Articles tagged by Isda

Brexit to Have Negligible Impact on ISDA Agreements Britain’s decision to leave the European Union (EU) will have little or no impact on ISDA agreements, legal experts said on a webinar last week. Speaking about the impact of the Brexit decision on the legal framework for derivatives ...
And Finally... Thursday marks an important day for financial markets with a fragmented regulatory regime about to come into force, and NDF and FX options markets are right in the firing line. Will the already fragile liquidity picture in these markets worsen?
ISDA Live with SIMM The International Swaps and Derivatives Association (ISDA) last week announced the live launch of the ISDA Standard Initial Margin Model (SIMM), an industry standard methodology that it says is being widely adopted by market participants to calculate initial margin for non-cleared derivatives trades. The launch comes as the US granted a last minute reprieve from the non-cleared margin rules in the face of opposition from market participants and announcements from four major centres that they were delaying enforcement of the rules
ISDA Calls for Infrastructure Standardisation The International Swaps and Derivatives Association (ISDA) has published a whitepaper calling for greater standardisation and automation of derivatives market infrastructures. The new paper, The Future of Derivatives Processing and Market Infrastructure, highlights a number of challenges with existing structures and processes, and recommends several steps the derivatives industry can take to create efficiencies – in particular, by embracing opportunities for further standardisation. "The derivatives industry has become reliant on legacy infrastructures and processes that have been layered on top of each other over time. That might be the result of historical acquisitions, where the respective systems haven't been fully integrated. More recently, the sheer pace of regulatory change has meant firms have been under pressure to tackle the next pressing deadline. The result is a derivatives infrastructure that is duplicative and based on incompatible operating standards, and this isn't sustainable," says Scott O'Malia, CEO of ISDA.
Changes at ISDA The International Swaps and Derivatives Association (ISDA) has announced two senior changes in its organisation. Tara Kruse has been appointed head of ISDA’s margin for non-cleared derivatives implementation effort. She replaces Mary Johannes, who is leaving the association to pursue other interests. Kruse joined ISDA in 2013 as a director in the data and reporting team, and was appointed co-head of data, reporting and FpML in March 2015. As head of the ISDA Working Group of Margining Requirements (WGMR) initiative Kruse will be responsible for helping the industry prepare for the variation margin ‘Big Bang’ on March 1, 2017, and the extension of initial margin requirements to phase-two entities in September 2017. She will also oversee forthcoming updates to the ISDA Standard Initial Margin Model (SIMM) and the management of the SIMM governance framework.
ISDA and IHS Markit Collaborate on VM Protocol Tool The International Swaps and Derivatives Association (ISDA) and IHS Markit have announced the launch of the ISDA 2016 Variation Margin Protocol on ISDA Amend. The protocol automates the process for amending existing collateral documents or setting up new agreements in order to comply with new variation margin requirements going into effect on March 1 2017. The ISDA Amend platform enables counterparties to electronically share specially designed questionnaires through a centralised online platform, removing the need for bilateral negotiations. Counterparties can make elections under the protocol, including which regulatory regimes apply and which method they will use to make the required changes to their documentation. The service also automates the reconciliation of questionnaires between counterparties.
Margin Deadline Could Lead to Swaps Market Disruption The swaps market could suffer disruption if buy side trading firms aren’t ready for the March 1 deadline for the implementation of new margin requirement rules, speakers at SefCon VII warned. Although buy side firms will not have to post initial margin for uncleared swaps transactions until 2019 or 2020, from March 1, 2017 they will be required to post variation margin when trading these products. The main challenge highlighted by buy side speakers at the SefCon VII conference in New York on January 18 was the administrative burden of having the correct paperwork and documentation agreed with various counterparties.
CFTC Extends the Runway for Margin Rule Compliance The US Commodity Futures Trading Commission (CFTC) has issued a no action letter stating that it will not enforce the variation margin requirements that come into effect for swap dealers (SD) on March 1 for six months. The CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) has issued a time-limited no-action letter stating that, from March 1, 2017 to September 1, 2017, it will not recommend an enforcement action against an SD for failure to comply with the variation margin requirements for swaps.
ISDA Hires Clearing Specialist The International Swaps and Derivatives Association (ISDA) has announced the appointment of Ulrich Karl as head of clearing services. ISDA says the appointment reflects its mission to foster safe and efficient markets, which includes promoting a robust infrastructure for clearing, trading and reporting. Karl joins from HSBC, where he served as director, CCP, global markets. In that role, he acted as the industry chair of ISDA’s Clearing, Risk and Capital Working Group. In the newly created role, Karl will report to Mark Gheerbrant, ISDA’s head of risk and capital.
ISDA: Time Ticking on Margin Deadlines The new variation margin deadlines still pose a substantial challenge to financial services firms, despite the “substantial progress” that many of these firms have made in their compliance efforts, according to Scott O’Malia, CEO of the International Swaps and Derivatives Association (ISDA). The variation margin requirements came into effect for swap dealers on March 1, 2017, but the Commodity Futures Trading Commission (CFTC) issued a no-action letter in February, which stated that it would not enforce the new rules for the first six months after this date.
ISDA: Markets Likely to Avoid Disruption from VM Rules The derivatives industry can breathe a sigh of relief regarding new variation margin (VM) requirements, as it now looks like majority of market participants will be ready for them, according to the International Swaps and Derivatives Association (ISDA). In a posting on the ISDA website, the association’s CEO, Scott O’Malia, notes that as recently as six months ago “the industry was facing the possibility of real disruption”. “With the variation margin ‘big bang’ set for implementation on March 1, but with only a fraction of the necessary changes to documentation completed, there was a very material risk that a large part of the market wouldn’t be able to trade,” he comments.
ISDA Weighs in on Brexit Impact Brexit is unlikely to have any impact on the contractual certainty of derivatives trades, but could affect some trade lifecycle actions, according to International Derivatives and Securities Associations (ISDA) CEO, Scott O’Malia. In an online post today O’Malia reveals that ISDA recently conducted analysis on one the ability of banks and investment firms to perform existing contractual obligations under transactions between the 27 European Union (EU) member states and UK counterparties that were entered into before Brexit. Specifically, this analysis focused on six jurisdictions – France, Germany, Italy, the Netherlands, Spain and the UK. According to O’Malia, the analysis shows that it is unlikely that there will be an impact on the performance of contractual obligations on existing trades – which includes payments, settlements, transfer of collateral and the exercise of pre-agreed options.
ISDA Seeks to Establish Digitalisation Framework The International Swaps and Derivatives Association (ISDA) has published a conceptual version of its ISDA Common Domain Model (CDM), which sets out the required elements to achieve a single digital representation of trade events and actions – something it says is “an important precursor to realise the full potential of new technologies, such as distributed ledger and smart contracts”. When fully developed, ISDA says the CDM will provide an industry standard blueprint for how derivatives are traded and managed across the lifecycle.
ISDA to Roadmap Benchmarks Transition The International Swaps and Derivatives Association has begun a comprehensive analysis of the issues and potential solutions related to transitioning financial market contracts and practices to new alternative risk-free rates. The association says the analysis will include a targeted global survey of buy- and sell-side firms and infrastructure providers to identify the means by which market participants can effectively implement regional benchmark transitions, as well as highlight possible challenges. The new report will consider how interbank rates, or ‘IBORs’, are currently used across financial markets.
Manske Joins ISDA Board The International Swaps and Derivatives Association (ISDA) has announced the appointment of Jason Manske, senior managing director, chief hedging officer and head of the global derivatives and liquid markets group at MetLife, to its board of directors. Manske is responsible for MetLife’s global derivatives and currencies, government and short-term trading, structured solutions and capital markets businesses. ISDA says the appointment is part of a commitment by its board to broaden its scope by incorporating members from diverse sectors of the derivatives market.
Associations Urge EU Regulation Change The International Swaps and Derivatives Association (ISDA), the European Banking Federation (EBF), International Capital Market Association (ICMA) and the International Securities Lending Association (ISLA) have published a whitepaper on the benefits of post-trade risk reduction services as a crucial risk management tool. The bodies say that risk reduction services like compression and counterparty rebalancing play an increasingly important role in reducing risks in derivatives markets. These benefits are recognised in the European Union under MIFID II/MIFIR, which exempt post-trade risk reduction administrative transactions from the trading obligation, however, currently no exemption from the clearing obligation in the EU for these transactions.
Survey: Derivatives Trading to Grow Despite Rising Costs In a new survey conducted by the International Swaps and Derivatives Association (ISDA), a majority of respondents said that they expect derivatives volumes to stay flat or increase in the future, despite also predicting that the cost of trading these products will increase. Asked about their expectations for overall derivatives activity, 83% of those surveyed said that they thought volumes will increase or remain the same over the next three to five years. The same proportion felt end-user activity will rise or remain unchanged over the same period. When asked to rate their optimism about the future of derivatives on a scale of one to 10, with 10 being the most optimistic, 65% opted for between seven and 10.
ISDA Adds Four Directors The International Swaps and Derivatives Association (ISDA) has added four new directors to its Board as it continues to expand its regional and business diversity. As part of the move, ISDA is expanding the central counterparty (CCP) representation on its Board to two, and has appointed Daniel Maguire, CEO of LCH Group, who joins Kevin McClear, corporate risk officer at the Intercontinental Exchange, who joined the Board last year. Each CCP will serve for a two-year term, on a revolving basis.
Research Paper Takes Aim at “Unrealistic” Non-Cleared Margin Requirements The International Swaps and Derivatives Association (ISDA) has published a new academic paper that analyses the regulatory initial margin framework for the non-cleared derivatives market and argues that the 10-day liquidity horizon applied under the framework is “not realistic”. The paper, written by Rama Cont, chair of mathematical finance at Imperial College London, examines the rationale for the 10-day liquidity horizon applied under the initial margin rules for non-cleared trades, and assesses whether it is appropriate. The 10-day period is double the five days set for cleared trades.
Report: How Banks Are Avoiding Dodd-Frank Swaps Rules A new report warns that US banks are using an obscure regulatory footnote to circumvent the swaps market provisions contained within Dodd-Frank. The report was written by Michael Greenberger, a professor at the Maryland Carey School of Law and a former director of the Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC), who has also served as counselor to the United States Attorney General in 1999 and as the US Justice Department's Principal Deputy Associate Attorney General. It was published by the Institute for New Economic Thinking (INET).
Associations Publish Global Benchmark Report The International Swaps and Derivatives Association (ISDA), the Association of Financial Markets in Europe (AFME), International Capital Market Association (ICMA) and the Securities Industry and Financial Markets Association (SIFMA) and its asset management group (SIFMA AMG) have published a new report that assesses the issues involved with benchmark reform, and makes recommendations on steps firms can take to prepare for the transition from interbank offered rates (IBORs) to alternative risk-free rates (RFRs). The report, which was based on a survey of 150 banks, end users, infrastructures and law firms in 24 countries, shows a gap between high levels of awareness of benchmark reform and concrete steps being taken to transition from the IBORs to alternative RFRs.
IRD Clearing Outstrips Mandate: ISDA New research from the International Swaps and Derivatives Association shows that the incentives offered by regulators to clear standardised interest rate derivatives is having a positive impact with more notional value being cleared than is mandated by the US Commodity Futures Trading Commission. Encouraging the clearing of standardised derivatives has been a major priority for policy-makers and has primarily been pursued through the implementation of clearing mandates. ISDA says, however, that other incentives also exist – netting and capital benefits and the rollout of margining requirements for non-cleared derivatives, for example.
ISDA Launches Global Consultation on Benchmark Fallbacks The International Swaps and Derivatives Association has launched a market-wide consultation on technical issues related to new benchmark fallbacks for derivatives contracts that reference certain interbank offered rates. The consultation sets out options for adjustments that would apply to the fallback rate in the event an IBOR is permanently discontinued. ISDA has been leading an industry effort to implement robust fallbacks for derivatives contracts referenced to certain Ibors since 2016, at the request of the Financial Stability Board’s Official Sector Steering Group.
And Another Thing... In this column on June 7 2018 I wrote that the time had come for someone to show industry leadership when it comes to arguing the foreign exchange industry’s corner specifically around pre-hedging and Mark Johnson’s pending appeal. I looked particularly at the industry associations and, some believe, called them out on it. It is pleasing to see that there is a response from the industry, but it is not yet enough and more can be done - especially by one or two associations.
Industry in Alignment Over CFTC Swap Dealer Rules There appeared to be a broad consensus in the responses to the Commodity Futures Trading Commission’s (CFTC) proposed swap dealer rules that the Commission should retain the current $8 billion de minimis threshold for swap dealer (SD) registration and that NDFs should be excluded from the threshold calculations. Since 2012, Commission regulations have stated that market participants will not be considered a "swap dealer" unless they trade over $8 billion per year in aggregate gross notional amount (AGNA). This $8 billion threshold was meant to be a temporary phase-in period, with the threshold ultimately due to be reduced to $3 billion.