CCP EUR discounting big-bang delayed ... by 1 month

For once, one my recommendations related to benchmark transition was followed ... partly. My recommandation was to postpone the big bang sine die, up to the time when all the consequences (e.g. swaptions) are fully under control and preferable to cancel the big-bang all together. To my opinion, the more sensible choice is a paced transition.

The delay to 27 July is short of the September date proposed by the ECB-led working group in a consultation and very short of my "sine die" proposal.

The delay is reported in Risk.net: Clearing houses postpone euro discounting switch to July (subscription required).

This delay proves, if needed, that the arguments put forward by the CCPs and discussed in my previous blog CCP Discounting big bang: delaying or not? were nothing more that nonsense. On the other side, the discussion about why such a big bang is even necessary is still open. A trader speaking to Risk indicated that any delay would be “a disaster” for swaptions, but he did not indicate how the initial decision to do a big-bang was not an even bigger disaster. Certainly forcing the big-bang solution on all swaptions must have had a larger impact than modifying the switch date by a couple of weeks, a move that impacted only some swaptions.

Note that more the big bang transition is delayed, less the impact will be. Now the swaptions trades have the option to indicate which "discounting" should apply to them at settlement. So the transition impact from the weak swaption contract description will reduce with time. Any problem with the new swaption is an error of the users, not a market infrastructure problem anymore.

The note from LCH (published 2020-04-17) is Transition to €STR Discounting: Updated Timing. I couldn't find the notes about the delay on EUREX or CME sites. They are probably hidden somewhere. Don't hesitate to leave the links in the comments.

Note added 2020-04-19: A press release on the subject was published by EACH on 2020-04-17: https://www.eachccp.eu/wp-content/uploads/2020/04/EACH-statement-on-the-transition-from-EONIA-to-%E2%82%ACSTR-discounting-regime.pdf

Comments

  1. Unknown4 May 2020 at 19:38

    Hi,

    Here is the note on CME site about the updated timing: https://www.cmegroup.com/notices/clearing/2020/04/Chadv20-168.html

    Regards,
    Nicolas

    ReplyDelete

Post a Comment

Popular posts from this blog

Multi-curve framework book: new edition in progress

Image
Subject: Interest Rate Modelling in the Multi-curve Framework: Foundations, Evolution, and Implementation It has been more than 10 years since I wrote the first edition of the multi-curve framework book. What happened in those 10 years? Why did it take me so long to start a new version? It took me roughly 10 years to write the first edition. The reason it took so long at that time, was that I did not know that I was writing it! I thought I was writing a couple of pages on an obscured and theoretical idea that there was not a `` one curve to rule them all '' but multiple curves. It turned out that it became the actual practice for very clear and important reasons. That was the excuse for the first edition, what is the excuse for the second edition? Since the first edition, many things happen, in particular: March 2015: BCBS - IOSCO: margin requirements for non-centrally cleared derivatives and mandatory variation margin July 2017: The future of LIBOR -- actually it...
Read more

Rigged: part 1 - Will there be a part 2?

Image
I have been reading book “Rigged: The Incredible True Story of the Whistleblowers Jailed after Exposing the Rotten Heart of the Financial” (Andy Verity, Flint, June 2023) for some time. It was published several month ago, but I just finished it. To my defence, I have to say that I don’t feel comfortable reading fiction where the “bad guys” are systematically winning by cheating. The book is the story of the miscarriage of justice done in the LIBOR manipulation story. The book content did not surprise me. For anybody having worked on a (swap) trading desk, it is clear that what was described by the accusation was impossible. It is not possible for some middle level trader to create a multi-year, multi-desk, multi-bank international conspiracy over open lines, broker lines, on open offices etc. without all around them, including compliance and senior management to be fully aware of what is going on. Moreover the regulators cannot be ignorant of the situation, except pleading complete in...
Read more

Treasury / Swap spreads are negative. And what?

In recent weeks there were several news articles related to the negative treasury/Swap spread. This is in particular the case of a Bloomberg article and a Zero Hedge blog . Some of the “information” in those notes are Swap rates are what companies, investors and traders pay to exchange fixed interest payments for floating ones. That rate falling below Treasury yields […]  is illogical in the eyes of most market observers, because it theoretically signals that traders view the credit of banks as superior to that of the U.S. government. It’s hard to overstate how illogical it is when swap spreads are inverted. That’s because it suggests that governments are less creditworthy than the very financial institutions they bailed out during the credit crisis just seven years ago. Let’s be clear, to me, those claims are purely wrong , nothing is “ illogical ” in negative swap spread. But why do I rant about that in the “multi-curve framework” blog? Because it is exactly the same that ...
Read more