Banks back ISDA protocol ahead of Fed's credit risk summit

Banks back ISDA protocol ahead of Fed's credit risk summit

The International Swaps and Derivatives Association (ISDA) says the world's major derivatives dealers - including the 14 banks summoned to meet at the Federal Reserve Bank of New York to discuss risk management practices in the credit derivatives markets - have agreed to use a new electronic messaging protocol designed to remove some of the paper clogging up back offices.

The Federal Reserve Bank of New York is due to meet with 14 banks to discuss concerns about risk management practices and back office problems in the $8.4 trillion credit derivatives markets.

In particular, regulators are concerned by the high level of unsigned confirmations outstanding between counterparties with, in some cases, transactions remaining unconfirmed for months.

ISDA says the new Novation protocol helps to address the problems by streamlining the transfer of existing trades to third parties via the exchange of electronic assignment messages rather than written consent, as is currently the case.

Robert Pickel, CEO and executive director, ISDA, says: "By simplifying and streamlining the process of transferring trades, this protocol removes a significant roadblock to confirming trades among dealers and investors."

The protocol, which will become effective on 24 October, will initially apply to credit and interest rate derivatives, but will be extended to other derivatives product areas in future.

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