82,964
edits
Netting manifesto: Difference between revisions
no edit summary
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| (3 intermediate revisions by the same user not shown) | |||
| Line 1: | Line 1: | ||
{{a|devil|}}To qualify for [[Regulatory capital|capital relief]] for [[netting]] and collateral arrangements built into [[master trading agreement]]s, a [[dealer]] must have reasoned [[legal opinion]]s that give a clear answer as to whether netting would be enforceable in each jurisdiction for each master agreement and for each counterparty type with whom it trades. | {{a|devil|{{image|Netting Eagle|png|}}}}To qualify for [[Regulatory capital|capital relief]] for [[netting]] and collateral arrangements built into [[master trading agreement]]s, a [[dealer]] must have reasoned [[legal opinion]]s that give a clear answer as to whether netting would be enforceable in each jurisdiction for each master agreement and for each counterparty type with whom it trades. | ||
Traditionally, each [[industry association]] has obtained [[netting opinion]]s for its own [[master agreement]] in main jurisdictions and for main counterparty types: | Traditionally, each [[industry association]] has obtained [[netting opinion]]s for its own [[master agreement]] in main jurisdictions and for main counterparty types: | ||
*[[ISDA]] for the {{isdama}} and [[credit support annex]]es | *[[ISDA]] for the {{isdama}} and [[credit support annex]]es | ||
| Line 7: | Line 7: | ||
===But it’s a disaster=== | ===But it’s a disaster=== | ||
*'''No co-ordination''': The industry associations don’t co-ordinate their opinion gathering, and indeed treat the gathering opinions as some kind of secret, commercially vital operation. | *'''No co-ordination''': The industry associations don’t co-ordinate their opinion gathering, and indeed treat the gathering opinions as some kind of secret, commercially vital operation. | ||
*'''Mucho duplication''': Despite ''tons'' of overlap in subject matter — whether an agreement is nettable for a given counterparty is unlikely to differ by agreement type — the [[industry association]]s instruct different firms, phrase their instructions differently, and identify and categorize counterparty types differently. | *'''Mucho duplication''': Despite ''tons'' of overlap in subject matter — whether an agreement is nettable for a given counterparty is unlikely to differ by agreement type — the [[industry association]]s instruct different firms, phrase their instructions differently, and identify and categorize counterparty types differently. | ||
*'''Arbitrary gaps''': There are arbitrary caps in coverage. A significant portion of our counterparties are not covered by industry opinions and require bespoke opinions | *'''Arbitrary gaps''': There are arbitrary caps in coverage. A significant portion of our counterparties are not covered by industry opinions and require bespoke opinions | ||
*'''Incomprehensible''': The opinons are long, verbose, and do not summarise of provide clear guidance, such that there are third-party services (e.g. AOSphere) designed to aid the interpretation and codification of opinions, and even these are inadequate, requiring additional internal interpretation. | *'''Incomprehensible''': The opinons are long, verbose, and do not summarise of provide clear guidance, such that there are third-party services (e.g. AOSphere) designed to aid the interpretation and codification of opinions, and even these are inadequate, requiring additional internal interpretation. | ||
*'''Supplemental opinions''': As a result | *'''Supplemental opinions''': As a result institutions must get additional custom opinions for entity types, jurisdictions and agreement types not covered by every industry opinion. | ||
Several industry associations independently carry out opinion gathering regimes at great expense on behalf of their memberships. The majority membership of all of these industry associations is common. The brokers have delegated the business of arranging for netting opinions to the industry associations and been largely passive in how it has been carried out. This has benefited the associations themselves, and the global law firms, but not the brokers. All of these brokers are paying for effectively the same service six or seven times, and then incurring further cost to understand what they have paid for, because those seven exercises are not done very well. | Several [[industry association|industry associations]] independently carry out opinion gathering regimes at great expense on behalf of their memberships. The majority membership of all of these industry associations is common. The brokers have delegated the business of arranging for netting opinions to the industry associations and been largely passive in how it has been carried out. This has benefited the associations themselves, and the global law firms, but not the brokers. All of these brokers are paying for effectively the same service six or seven times, and then incurring further cost to understand what they have paid for, because those seven exercises are not done very well. | ||
The industry needs clear, binary netting signals, itemised for standard counterparty types, rendered consistently across agreement formats, ideally in a machine-readable form. | The industry needs clear, binary netting signals, itemised for standard counterparty types, rendered consistently across agreement formats, ideally in a machine-readable form. | ||
| Line 43: | Line 43: | ||
This is anti-competitive. (It isn’t) | This is anti-competitive. (It isn’t) | ||
{{Sa}} | |||
*[[Close-out netting]] | |||
*[[Netting opinion]] | |||