Marc Henrard - Multi-curve framework

Recently ISDA, ARRC and regulators have started a joined marketing barrage to convince market participants to adhere to the ISDA Fallback Protocol “in escrow”. I have commented on the Protocol signature many times before in seminars and on LinkedIn but not directly in a post. I have tried to summarize some of my arguments below. Before doing that, I have to repeat that I agree that a robust fallback is required. The current ISDA definitions do not contain a robust fallback and something needs to be done. Where we disagree is that the ISDA proposed fallback is the only one that is possible. I even disagree that the ISDA proposed fallback is actually robust, but that is another story that I have already discussed in many other posts (for example Fallback compounding in arrears won't work ). Even if someone today believes that the protocol is the best alternative for him, there is no advantage in early adherence. The adherence is like a pure American option, i.e. whenever you exercise

This is a follow up on previous post on Where is ESTR? and Where is ESTR? (2) In the mean time, the main CCPs have switch their PAI to ESTR in EUR and it should be the standard now. The July data includes one week in the new regime. What do we see in the LCH-cleared OTC data? Almost nothing! The monthly volume for ESTR OIS was 76 bn (USD equivalent), just  above 1/3 of what is was in January and February (see graph below). Not a very positive trend. Figure 1: Monthly ESTR volume at LCH. This means a total volume for ESTR OIS of 640 bn since the start of the year. This is in contrast with the 53 trn in all OIS (EONIA and ESTR). ESTR-linked products are only 1.2% of all overnight-linked products. The ISDA SwapsInfo weekly provides different figures, which are related to trade disclosed under US regulation only. In the last week, there were 20 new trades, this is around 20% of the number of trades since the beginning of the year. A big relative increase, but an increase from a irr

Risk.Net published a recent article about the confusion related to the fallbacks in the cross-currency swap market. The article is " Cross-currency confusion stalks FCA announcements " (subscription required). Confusion and winner and loser have been the common component of the fallback process up to now. I certainly don't disagree with the article but as I have said in a similar context recently, I'm surprised by the surprise . One of the elements put forward in the article is " opposing legs of a cross-currency swap could be fixed up to a year apart ". One of the main cross-currency market is USD-LIBOR/EUR-EURIBOR, and in that case, the opposite legs could fix 5 or more years apart. In the cross-currency case, I'm not impressed by one year. In the single currency case, opposite legs of basis swaps may fix at the same time, but will fix on data from different periods. The periods will be obtained with the most recent 5 year period for which the ON in ar