Featured Product

    ECB Group Recommends Voluntary Compensation for Legacy Swaptions

    June 16, 2020

    ECB announced the recommendation of the private-sector working group on euro risk-free rates that counterparties should voluntarily exchange compensation for legacy swaption contracts. These legacy contracts are those affected by the transition of central counterparty discounting from the euro overnight index average (EONIA) to the euro short-term rate (€STR), which is planned for around July 27, 2020. The working group notes that this recommendation is based on feedback received from the March 2020 consultation on swaptions impacted by the central clearing counterparties (CCPs) discounting transition to the €STR.

    The working group emphasizes that any agreement between counterparties to make adjustments to their contracts or exchange compensation, whether based on the working group recommendation or not, would be entirely voluntary.  The working group recommends that market participants contact their swaptions counterparties to determine whether they intend to consider voluntary compensation. Prompt action is recommended to avoid an extended period of uncertainty, minimize any valuation difference, and promote responsible risk management and market liquidity and resilience. The working group acknowledged that the modalities for implementing voluntary compensation may vary, as already outlined in the public consultation on swaptions impacted by the CCP discounting transition to the €STR. Market feedback collected during this consultation did not point to one single preferred modality for implementing voluntary compensation, which means a working group recommendation could not be established for such implementation modalities. Thus, the working group decided not to recommend one approach above others, as market feedback did not single out a preferred option. Consequently, the working group is sharing additional information on what appears to be the most feasible and preferred options with market participants to assist them in making their own decisions. 

    Additionally, in feedback to the March consultation, no consensus emerged on the scope of the swaption contracts to be compensated and on the timing of the voluntarily exchange. Half of the respondents were in favor of the working group recommending that voluntary compensation exchange take place at a pre‐agreed date prior to the CCP discounting switch date, with compensation exchange for each swaption at expiry as a backstop. Based on the feedback provided in the consultation, and in the absence of a consensus on one date, the following key dates could determine the relevant swaption contract population:

    • Date on which this recommendation is published (June 16, 2020)
    • Go‐live date of (ISDA Supplement 64 to the 2006 ISDA Definitions published on March 30, 2020    
    • Date on which the CCPs announced the discounting switch date (from September 2019 to January 2020 for each CCP respectively)
    • CCP discounting switch date (July 27, 2020)

     

    Related Links

    Keywords: Europe, EU, Banking, Securities, Legacy Swaptions, Swaptions, Risk Free Rates, €STR, EONIA, CCPs, Benchmark Reforms, ISDA, ECB

    Related Articles
    News

    UK Government to Set Out Rules on Wind-down of Critical Benchmarks

    HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.

    May 07, 2021 WebPage Regulatory News
    News

    EIOPA Launches Stress Test for Insurance Sector in EU

    EIOPA launched the 2021 stress test for the insurance sector in EU.

    May 07, 2021 WebPage Regulatory News
    News

    UK Authorities Publish Third Edition of Regulatory Initiatives Grid

    UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.

    May 07, 2021 WebPage Regulatory News
    News

    EC Consults on Regulation on Non-Financial Sustainability Disclosures

    EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.

    May 07, 2021 WebPage Regulatory News
    News

    OSFI Outlines Prudential Policy Priorities for Coming Months

    OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BIS Announces TechSprint on Innovative Green Finance Solutions

    Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.

    May 06, 2021 WebPage Regulatory News
    News

    ACPR Publishes Version 1.0.0 of RUBA Taxonomy

    ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    EBA Proposed Regulatory Standards for Central Database on AML/CFT

    EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ECB Responds to EC Consultation on Crisis Management Framework

    ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.

    May 06, 2021 WebPage Regulatory News
    News

    BCBS, CPMI, and IOSCO to Survey Market Participants on Margin Calls

    BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.

    May 05, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6942