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