Calculation Agent: Difference between revisions

Now, to be fair, there was a time, in living memory, when swap dealers ''would'' rip off their clients’ faces at the merest opportunity, in some markets. “[[Cheapest to deliver]]” options in managed [[Collateralised debt obligation|CDO]] portfolios spring unhappily to mind. Banks used to “prop trade” a lot more than they do now. The year or our lord 2006 was a wild time. There are different regulations now: capital rules, clearing obligations, prop-trading restrictions, and [[best execution]] obligations. Dealers play much more of an agency role now. They act like brokers ought to: they execute as riskless principals, they earn their keep from commissions, and not by trading against their clients. In observable, liquid markets, clients can see for themselves whether they are getting good prices, and can take their business elsewhere if they are not.

But even if they were justified, the dispute mechanism our learned friends habitually confect boil down to seeking prices from ''other'' “reference dealers”. The exact method can be baroque: appeals to Law Society presidents, competing panels of reference dealers, fallbacks dealers, [[Co-calculation agent|co-calculation agents]], discarding outliers, splitting differences and so on, but each is predicated on the idea that a disinterested market participant — who is still, remember, a rapacious dealer, just not one with a dog in the fight — will be less [[inclined]] to tear your face from the bone than the one with whom you have had a fruitful twenty-year relationship. This feels wishful.

As does the idea that a disinterested dealer will have any interest in offering a price ''at all''. Why would it? What does it have to gain from reverse engineering a historical  market value for a a security it will not actually get to trade?