ISDA Launches Indicator to Monitor Risk-Free Rate Adoption
ISDA launched a new indicator to monitor the adoption of alternative risk-free rates in derivatives trading. ISDA published the first monthly report of this indicator, which has been developed in conjunction with Clarus Financial Technology and will provide a snapshot of the risk-free rates trading activity in the interest rate derivatives markets. The snapshot will be based on global cleared over-the-counter (OTC) and exchange-traded derivatives data from seven central counterparties spanning six currencies (AUD, CHF, EUR, GBP, JPY, and USD). ISDA also published a whitepaper that details the methodology behind the indicator (and sub-indicators) to monitor the extend of risk-free rate derivatives trading activity.
The indicator is intended to help derivatives market participants keep tabs on progress to shift to risk-free rates ahead of the end of 2021, when FCA will no longer compel or persuade banks to make LIBOR submissions. The risk-free rates adoption indicator tracks the percentage of cleared interest rate derivatives trading activity that references risk-free rates, measured by DV01. DV01 is a gauge of risk that represents the valuation change in a derivative contract resulting from a parallel basis point shift in the swaps curve. ISDA and Clarus also developed a number of sub-indicators that provide additional granularity based on currencies, tenor, over-the-counter versus exchange-traded interest rate derivatives, and notional amount traded. The indicator uses notional volume data in USD equivalent as the input data. Notional traded as reported by central counterparties is used for OTC interest rate derivatives markets. The number of contracts traded is converted into notional equivalents for exchange-traded derivatives markets. Contracts referencing historically dominant rates are grouped together as other indices. These cover the major interbank offered rates (IBORs) in the six currencies as well as EONIA and the effective federal funds rate. The risk-free rates covered are USD SOFR, EUR €STR, GBP SONIA, JPY TONA, AUD AONIA, CHF SARON. Only transactions cleared via a central counterparty are captured. The indicator is designed to be flexible in case other central counterparties or futures contracts gain significant volumes.
Related Links
Keywords: International, Banking, Securities, Risk-Free Rates, IBOR, Derivatives, Interest Rate Benchmarks, Benchmark Reforms, Risk-Free Rate Adoption, ISDA
Previous Article
ECB Updates List of International Entities for AnaCredit ReportingRelated Articles
US Agencies Finalize Interim Final Rules Issued Amid Pandemic
US Agencies (FDIC, FED, and OCC) finalized two rules, which are either identical or substantially similar to the interim final rules in effect and issued earlier this year.
EIOPA Consults on Use of Risk Mitigation Techniques Under Solvency II
EIOPA is consulting on a supervisory statement on the use of risk mitigation techniques by insurance and reinsurance undertakings.
APRA Proposes to Increase Transparency of Banking Data
APRA announced that it is resuming consultation on the confidentiality of data submitted to APRA by the authorized deposit-taking institutions.
BoE and FCA Encourage Switch to SONIA in Interest Rate Swap Markets
BoE and FCA are supporting and encouraging liquidity providers in the sterling swaps market to adopt new quoting conventions for inter-dealer trading based on SONIA, instead of LIBOR, from October 27, 2020.
Bundesbank Updates Supporting Information for SHS Reporting
Deutsche Bundesbank published special schema files for securities holdings statistics (SHS), along with a document on the XML format description.
EC Deems UK Framework for CCPs Temporarily Equivalent to EMIR Rules
EC adopted a decision determining, for a limited period of time, that the regulatory framework applicable to central counterparties, or CCPs, in the UK and Northern Ireland is equivalent to the requirements laid down in the European Market Infrastructure Regulation (EMIR or Regulation 648/2012).
ESMA to Recognize Three Central Counterparties from UK
ESMA announced that it will recognize three central counterparties (CCPs) established in the UK as third-country CCPs, from January 01, 2021.
PRA Publishes Version 02.04 of PRA110 Liquidity Metric Monitor Tool
PRA published Version 02.04 of the PRA110 liquidity metric monitoring tool (PRA110 LMM tool).
LEI ROC Confirmed as Governance Body for OTC Derivatives Identifiers
FSB confirmed the Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier System (GLEIS) as the International Governance Body for the globally harmonized identifiers used to track over-the-counter (OTC) derivatives transactions, with effect from October 01, 2020.
FCA Consults on Regulation of International Firms in UK
FCA is consulting on its approach to the authorization and supervision of international firms operating in UK.
