€STR – What You Need to Know
€STR (né ESTER) will be the Risk Free Rate (RFR) for EUR markets. Publication begins 2nd October 2019. The ECB will provide a calculation of the spread between €STR and EONIA. The spread is likely to be around 8.7 basis points. What You Need to Know about €STR (ESTER) Some of our readers may be […]
LIBOR Fallbacks – What will the GBP spread be?
We take a look at historic data for SONIA and GBP LIBOR. ISDA’s work on LIBOR fallbacks allows us to look into the potential values of the historic spread. We compare to the forward-looking LIBOR-OIS spreads to the backward looking compounded RFR values. Initial analysis shows that the look-back period will be an important consideration. […]
Reducing Counterparty Risk of Uncleared Derivatives
In my previous posts I concluded that uncleared counterparty risk is bigger than traded notional figures suggest and that, so far, UMR has only driven a limited further shift towards clearing. Here, as promised, I take a spin through approaches which complement new trade clearing and can also improve OTC uncleared counterparty risk efficiency. Summary […]
KCCP – Clearing is Getting Cheaper
KCCP defines the amount of capital that must be held versus default fund contributions at a CCP. The lower the value of KCCP, the lower the overall cost of clearing. CPMI-IOSCO public disclosures show that KCCP has decreased at all of the major CCPs in the past three years. We look at the data and […]
Swaps Data: SOFR Swaps slip, Futures flip
My monthly Swaps Review in Risk Magazine looks at: Volumes in SOFR Futures SOFR Swaps AONIA and SONIA Swaps Volumes and tenors traded Volumes in EONIA and FedFund Swaps Please click here for free access to the full article on Risk.net.
RFRs, Cross Currency Swaps and Australian markets
Cross-currency swap markets are in the process of adapting to a post-Libor environment. New trades will reference the RFRs or risk a complicated process of renegotiating fallbacks (in the case of legacy trades) or incorporating the proposed ISDA fallbacks, when the 2006 ISDA Definitions change. Either way, continuing to reference Libor past 2021 will become […]
Is the Leverage Ratio impacting Swaps Trading?
Is the Leverage Ratio impacting Swaps Trading in Europe? This is a question posted by the authors of a recent ECB Working Paper, “The anatomy of the euro area interest rate swap market“. We provide an overview of the paper and look through the window that it provides into post-trade data in Europe. Executive Summary […]
Compression Auctions for RFRs
At the December 2018 SONIA Working Group, Darrell Duffie (Stanford University), presented a way of compressing existing LIBOR contracts into SONIA contracts. I think it is worth reviewing the suggested methodology. I also put forward a slight alternative that draws heavily on the work of Duffie. This idea is meant for discussion purposes, so please […]
Will UMR lead to a further material shift to clearing?
In my previous post Counterparty Risk: Some Way to Go for Derivatives, I concluded that uncleared OTC counterparty risk is bigger than the 80% cleared traded notional volumes might imply. Of all counterparty risk about two thirds (65%) or more is uncleared and about half (49%) or more is linear delta. A lot is riding […]
FRTB Risk Factor Eligibility Test (RFET)
In January 2019, the Basle Committee on Banking Supervision (BCBS) revised the 2016 market risk framework, generally known as the Fundamental Review of the Trading Book (FRTB) to address design and calibration issues and to provide further clarification. One of the topics of interest is an improved criteria for the identification of modellable risk factors […]