September 19, 2013 / 1:36 PM / in 4 years

Swaps trade body to reform ISDAfix from 2014

LONDON, Sept 19 (Reuters) - The world’s top swaps trade body, whose ISDAfix benchmark is being investigated by regulators on both sides of the Atlantic for possible manipulation, is to reform the market yardstick next year.

Benchmarks help price financial products worth trillions of dollars around the world but are under the regulatory spotlight after three banks were fined $2.6 billion for rigging the London Interbank Offered Rate or Libor.

ISDAfix is overseen by the International Swaps and Derivatives Association (ISDA) and based on a poll of banks.

ISDA aims next year to base the benchmark on actual swap transactions.

“The ISDAfix problem is easier to fix than Libor in the sense there is an underlying market of swap transactions,” ISDA Chairman Stephen O‘Connor told reporters.

Libor is the rate at which banks could borrow from each other but there are few transactions compared with before the 2007-09 financial crisis.

O‘Connor said there are hundreds if not thousands of swap transactions a day on which to base a reformed ISDAfix.

“With that volume and with the move to centralised trading facilities both in the U.S. and Europe, I think the approach will be to pull information from those venues which will be anchored in a market that has observable transactions,” O‘Connor said.

The switch will start with the euro and dollar based swaps in 2014.

The ISDAfix for sterling, yen and Swiss franc will follow as swaps volumes in those currencies build up on the new trading facilities, O‘Connor said.

Meanwhile the U.S. Commodity Futures Trading Commission (CFTC) has asked ISDA for information on how ISDAfix is compiled.

“We are not aware of any specific allegations,” ISDA chief executive Robert Pickel told reporters.

“We have seen what’s been reported in the press. We really don’t know where that’s going, when that’s going,” Pickel said.

The European Commission’s anti-trust unit has charged ISDA, several banks and others with blocking exchanges’ access to the credit derivatives market between 2006 and 2009.

Pickel said ISDA was putting together its response by next month to the EU’s concerns which are “very narrow” in relation to the trade body.

“I don’t exactly know what the timeframe for the Commission will be beyond that but it’s probably later this year or early next year,” Pickel said.

ISDA was confident that the steps it took during the period under investigation by the EU were “proper”, Pickel added.

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