ECB working group on euro risk-free rates launched a public consultation on whether to issue recommendations to address specific issues for swaption products as a result of the proposed transition from EONIA to the euro short-term rate (€STR). This consultation follows the publication of a report on the transfer of EONIA’s cash and derivative markets liquidity to the €STR, which the working group issued in February 2020. The comment period for this consultation ends on April 03, 2020. EC and ECB will evaluate all responses and prepare and publish an anonymized feedback summary to be considered by the working group at its meeting on April 21, 2020.
The central counterparty (CCP) discounting switch from EONIA to the €STR, which is planned for June 2020, will raise specific issues for such swaption products. If the exercise date of these contracts is after the CCP transition date, their valuation may change as a result of the discounting switch from EONIA to the €STR. However, the CCP compensation mechanism will not apply to them because the contracts are bilateral, not cleared. This consultation from the working group on euro risk-free rates is seeking feedback on whether it should issue recommendations regarding the voluntary exchange (or lack thereof) of a cash compensation between bilateral counterparties to such swaption contracts.
This consultation paper discusses a variety of options to address the swaptions impacted by the CCP discounting transition from EONIA to €STR. Each recipient of this paper is responsible for making its own assessment about the suitability of the various options discussed herein. Recipients must continue to operate in an independent and competitive manner and they shall not use the content of this paper to coordinate their activities in breach of applicable law. While this consultation only focuses on euro-denominated contracts, a similar consultation is being carried out by the US Alternative Risk-free Rate Committee (ARRC) for contracts denominated in USD and it contains similar statements and questions to allow market participants to respond in a consistent way.
Comment Due Date: April 03, 2020
Keywords: Europe, EU, Banking, Securities, Swaptions, EONIA, €STR, CCPs, Risk-Free Rates, Interest Rate Benchmarks, Derivatives, Benchmarks, ECB
Previous ArticleUS Agencies Issue Supplemental Instructions to FFIEC Call Reports
APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.
EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).
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.
EIOPA launched the 2021 stress test for the insurance sector in EU.
UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.
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.
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.
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.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.