Asian Options – IQ September 2020

Both Brexit and benchmark reform emerged as headline issues relatively close together – June 2016 for the Brexit referendum and July 2017 when the UK Financial Conduct Authority revealed that LIBOR might not exist after the end of 2021. They are now also approaching their denouement in lockstep: both will require a big push by firms in the remaining months of 2020 in order to be ready for the changes they will bring in 2021 and beyond.

In this issue of IQ, we pick up on both of those topics. As part of our cover package focusing on Asia-Pacific, we explore the progress firms in the region have made on LIBOR transition, as well as efforts to build liquidity in alternatives to local interbank offered rates (IBORs). As big users of LIBOR, Asian institutions have large legacy exposures – and, as some regulators in the region are warning, prompt action is needed now to deal with them.

The rollout of new, robust fallbacks will help reduce the systemic disruption that would likely occur in the event an IBOR ceases to exist, and ISDA will shortly publish a supplement and protocol to incorporate fallbacks into derivatives contracts that reference key IBORs. According to a statement from the ISDA board of directors in July, the protocol will be the “most efficient way for participants in the vast majority of non-cleared derivatives markets to mitigate against the risks associated with the discontinuation of a key IBOR”.

When it comes to Brexit, one of the open questions relates to disputes on derivatives transactions where the parties have opted for their ISDA Master Agreement to be governed by English law and subject to the jurisdiction of English courts. Specifically, there is still some uncertainty over the recognition and enforcement of English court judgements in Europe after the end of the Brexit transition period on December 31, 2020.

In this issue, we look at this question from a variety of perspectives. As well as an analysis of possible scenarios for how European states will treat English court jurisdiction clauses and judgements post-transition, we also begin a series of articles exploring the options derivatives participants have for the resolution of disputes.

Whether ramping up LIBOR transition efforts, implementing new fallbacks or exploring the impact of different scenarios after the Brexit transition period, much of the hard work and preparation needs to occur now. To support members, ISDA will continue to publish information and analysis on its website (www.isda.org/fallbacks, www.isda.org/tag/brexit), and, where possible, develop industry solutions to ease implementation challenges.

Click on the attached PDF to read the full issue.

Documents (1) for Asian Options – IQ September 2020

Expanding the Universe of Eligible VM

ISDA conducted a series of interviews with buy- and sell-side firms to understand the drivers of a growing use of non-cash assets as variation margin (VM) for non-cleared over-the-counter (OTC) derivatives and the barriers that remain to expanding the use...

ISDA Response on Hedge Accounting Guidance

On August 14, ISDA responded to an exposure draft from the Financial Accounting Standards Board (FASB). ISDA broadly supports the FASB’s proposed targeted improvements to hedge accounting, including allowing interest rate hedging of held-to-maturity (HTM) debt securities, recognizing all Secured...

Joint Response to EBA Consultation

On August 12, ISDA and the Association for Financial Markets in Europe (AFME) responded to the European Banking Authority’s discussion paper on certain taxonomy key performance indicators (KPIs) and other aspects of the Disclosures Delegated Act  under Article 8 of...

Response to JSCC on Clearing Fund Consolidation

On August 12, ISDA responded to the Japan Securities Clearing Corporation’s (JSCC) consultation on its proposal to consolidate clearing fund consumption, calculation and deposit segmentation across six clearing qualifications under the Financial Instruments and Exchange Act. ISDA members broadly support...