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
ESAs Issue Multiple Regulatory Updates for Financial Sector Entities
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
EBA Finalizes Methodology for Stress Tests, Issues Other Updates
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
OSFI Sets Out Work Priorities and Reporting Updates for Banks
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
APRA Finalizes Changes to Capital Framework, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
BIS Hub and Central Banks Conduct CBDC and DeFI Pilots
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)
