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

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697