It’s been long debated that swap reforms and newly ushered rules for banks could not only be lengthy and costly for compliance, but also hurt end-users. A fragmented market and the reduction of liquidity are also among the growing concerns according to the ISDA during its 29th annual meeting last week. While the ISDA remains hopeful that these issues will be fleeting, the end-user impact from clearing rules are being examined with scrutiny.
ISDA Chairman Stephen O’Connor spoke to Risk.net, maintaining the fact that parties caught by the clearing mandate, are among the direct changes that will be making headlines and he believes will be the center of attention in the upcoming months. Margin rules coupled with clearing will be what treasurers and fund managers have in their cross-hairs in terms of ramifications.
The confusion of when products are subject to US mandate has increased even during the first few days of implementation. While many end-users in Europe have expressed in various surveys the intention of complying, there is still a large avoidance being reported, in that the markets are determined to avoid trading with US persons. These are now being challenged in court by ISDA and two other associations. As a result, the rollback of the agency’s “extraterritorial approach” is uncertain.