ISDA standardises IRSs with new contract

Interest rate swaps are set to become more standardised following the release of the Market Agreed Coupon contract by the International Swaps and Derivatives Association.

By None

Interest rate swaps are set to become more standardised following the release of the Market Agreed Coupon (MAC) contract by the International Swaps and Derivatives Association (ISDA).

The MAC confirmation features a range of pre-set terms in areas including fixed coupons, currencies, maturities, start and end dates, and payment dates - which are aligned with futures contract's quarterly expiry dates in March, June, September and December.

The contract could mature in periods from one to 30 years, and covers currencies including the US dollar, euro, sterling, yen and the Canadian and Australian dollars.

It is aimed at promoting liquidity for market participants with easily tradable swaps, while also improving transparency and providing choice.

"The Market Agreed Coupon confirmation is part of ISDA's continuing efforts to increase efficiency in the OTC derivatives markets by offering market participants the option to trade using pre-agreed contract terms," Robert Pickel, CEO of ISDA, said.

The new standarised contract, which was announced by ISDA at its annual meeting in Singapore, comes as market participants adjust to new OTC derivatives rules.

Both the US Dodd-Frank and European market infrastructure regulation require swaps to be reported trade repositories and centrally cleared. Swaps will also be traded on exchange-like platforms in both regions - swap execution facilities under Dodd-Frank in the US and organised trading facilities (OTFs) under MiFID II rules, where are yet to be finalised.

ISDA also released its Operations Benchmarking Survey, conducted from January 1 to December 31, 2012, before OTC derivatives rules were implemented.

Seventy-seven ISDA member firms that participated in the survey were asked how they were preparing to meet new clearing initiatives. 

More than 75% were planning to begin clearing before new regulations kicked-in, and 79% were keen to join global clearing houses.

Respondents reported establishing relationships with more clearing firms, from 11 in 2011 to 17 in 2012. 

The survey also found that the volume of swaps trading fell by 8% last year, with credit derivatives experiencing a 30% drop.

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