Global regulators have succeeded in pushing three-quarters of the interest rate derivatives market, or what are known as standardised trades, into clearing houses that sit between a buyer and seller and manage the fallout should one side default.
The March date “is the industry’s Big Bang”, says Scott O’Malia, chief executive of Isda, the derivatives trade association.
And many of those that will be affected are failing at the first step — ensuring that the legal contracts on which their swaps are based comply with rules brought in by Basel regulators.
For those not yet compliant the first step is to rewrite a kind of contract, known as a credit support annex (CSA), that underpins derivatives contracts. That means advising, renegotiating and rewriting up to 200,000 CSAs.
Given the lack of preparation, calls for a delay in implementation are growing louder. Some countries in Asia have granted one. In January the Securities Industry and Financial Markets Association’s asset management group and the Investment Adviser Association called on regulators in the US, Europe and Japan to co-ordinate a six-month pushback. Chris Giancarlo, acting head of the Commodity Futures Trading Commission, the US derivatives regulator, has said he is sympathetic to a delay.
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