search   Knowledge Bank printable version
 News
 Knowledge Bank
 Deal Information
 International
 Software
 Publications
 Industry Events
 Advocacy Forums
 Links
 Site Utilities
 Contributors
 Free Offers
 Home

Click here to
Update Registration
Information

Please be advised that the use of Securitization.net ®
is subject to the
Terms & Conditions

of use and the
Privacy Policy

Download

Best viewed in

Knowledge Bank > Financial > Banking & Bonds/ Credit & Default Risk
Select an area


Free Subscription for site members.

Counterparty Risk - ISDA, LIBA, TBMA Issue Recommendations to the Basel Committee
RiskCenter.com (June 26, 2003)

The International Swaps and Derivatives Association (ISDA), the London Investment Banking Association (LIBA) and The Bond Market Association (TBMA) yesterday issued a detailed set of recommendations concerning the counterparty risk treatment of OTC derivatives and securities financing transactions.

The recommendations are based on extensive research spearheaded by the ISDA Counterparty Risk Working Group (CRWG), focusing on methods of measuring potential future exposure used by member firms for the purpose of calculating economic capital assigned against OTC derivative and securities financing transactions.

ISDA, LIBA and TBMA launched a survey of counterparty risk measurement practices, whose terms were discussed and agreed upon with the Basel Committee's Models Task Force (MTF). This survey shows that a majority of respondents use Expec ted Positive Exposure (EPE) based measures of future exposure to calculate economic capital. The survey also confirms the findings of the ISDA Margin Survey, showing increasing use of collateral against OTC derivatives positions.

The CRWG furthermore continued to analyze and refine the assumptions underlying its initial proposal (see www.isda.org, ISDA's response to the Second Consultation Paper issued by the Basel Committee on the New Capital Accord, May 2001). This was promp ted in part by feedback from regulators, including the analysis of its proposal by the Federal Reserve Board.

The Associations understand that the MTF intends to review the capital treatment of counterparty risk soon after the adoption of the New Accord, with a view to implementing any necessary changes at the same time as the Accord itself if possible. The Associations strongly support this objective and have stressed in their recommendations the need for reviewing the capital treatment of OTC derivatives and securities financing transactions (SFTs) jointly, considering that SFTs, like many OTC derivative transactions, involve the transfer of collateral, and are utilized by market participants for many of the same purposes, in particular to manage risk. As such, securities financing transactions are increasingly managed together with OTC derivatives under cross product netting agreements.

 

 

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

Legal Notices | Attorney Advertising | Site Index | Contact Webmaster

*The site links listed on this web site are for reference use only.
The firm does not necessarily sponsor, endorse or verify the accuracy of the content contained in any of these sites.