Marc Henrard - Multi-curve framework

Today is February 29th. I couldn't resits publishing something, at least for the date! Yesterday a new article related to rate transition hit Risk.Net. This time about the swaption compensation (subscription required). This is what I said about this compensation a week or so ago: "Personally I don’t believe that a market-wide compensation will be found, for the same reason that I believe that ISDA fallback protocol will not be generalised. Those value transfers create winners and losers; losers will sign, winners will not. If I know that I would have to compensate you for some swaptions and I have no legal obligation to do so, why would I even discuss a mechanism to do so?" The only argument for the compensation is some kind of peer pressure and credibility of the transition process. This roughly the summary of the Risk article. Let me compare this with my recent favorite subject: Cost of signing the LIBOR fallback protocol . In the swaption case, there is a ful...

Edwin Schooling Latter, director for markets and wholesale policy at the UK’s Financial Conduct Authority apparently said ( as reported in Risk.Net ) Not signing these protocols seems to us a huge risk to take if you have effective contracts, and any UK regulated firm with major uncleared derivatives exposures that chooses not to sign will need to be ready for some serious questions from supervisors on how they’re going to mitigate the risks they face. I have serious questions about that warning. My recent column in the same Risk.Net publication ( Signing the LIBOR fallback protocol: a cautionary tale ) is implicitly saying exactly the opposite: " any derivative user signing the protocol will need to be ready for some serious questions from its investors ". Just for clarity and again repeating the opinion in my column, I strongly advice derivatives users to sign something related to the fallback. That something should be a bilaterally agreed document with the same int...

Pre-cessation trigger consultation: here we go again! ISDA has launched yesterday a second consultation on pre-cessation fallbacks . The first consultation did not provide the results the Power from Above wanted, so here we go again. My answer is below. It is a summary of arguments I have made in previous article and blogs. I may improve the wording before sending it to ISDA. If I do so, I will update this blog accordingly. ISDA Question (summary): Should ISDA publish a Supplement to the 2006 ISDA Definitions so that the Rate Options for LIBOR all contain fallbacks that would apply upon the first to occur of (i) a permanent cessation trigger or (ii) a ‘non-representativeness’ pre-cessation trigger? Answer: NO Additional explanations: In the current master agreements, the only event that leads to a fallback is the non-publication of the rate, there is no notion of announcement date and even less pre-cessation trigger . A pre-cessation trigger forces extra complexity and...

Inspired by my previous post . Belgium produced many astonishing people, the two best known of them a purely fictional characters: Tintin and Hercule Poirot. Among the non-fictional Belgian characters is Jacques Brel. The famous singer was so influential, that his song with a Latin title Rosa and a Latin chorus Rosa rosa rosam Rosae rosae rosa Rosae rosae rosas Rosarum rosis rosis has now inspired the Federal Reserve Bank of New York for the publication of SOFR averages . Qui vont à ceux qui ont la chance D'apprendre dès leur enfance Tout ce qui ne leur servira pas Jacques Brel That goes to those who are lucky enough To read the publication as early as 2 March Of all those SOFR averages they don’t need Federal Reserve Bank of New York

The Federal Reserve Bank of New York has requested comments on its Proposed Publication of SOFR Averages and a SOFR Index. The proposal and the request for comments are available on their website at https://www.newyorkfed.org/markets/opolicy/operating_policy_191104 . I commented on the proposal as can be seen on my post: Comment on a Proposed Publication of SOFR Averages and a SOFR Index . The NY Fed has decided, against my advice, to go forward with the publication of those averages. The statement has been posted on 12 February on their website: Statement Regarding Publication of SOFR Averages and a SOFR Index . The page contains a link to the answers received (including mine). The main reason for my advice to not publish such average was that it is, to my opinion, useless and creates confusion . The publication of the statement and the reading of some of the comments reinforce my opinion. Nowhere in the statement or in the comments have I seen one single proposal on how to use those...