NEW YORK (IFR) - The International Swap and Derivatives Association has launched an invitation to tender for external companies to take over administration of its Determinations Committee, strengthening the independence of the decision-making body, IFR reported.
The moves follows its adoption of new rules aimed at improving transparency and oversight of DC operations, and a series of recent controversies surrounding DC processes.
However, ISDA chairman Scott O’Malia denied there was any connection between those events and the decision to step away from DC administrative duties.
“This is a discussion that the ISDA board has been having for some time as we evaluate what we are focused on and what we don’t need to focus on,” he said. “It’s simply that we do not feel the DC secretary role is core to our mission.”
ISDA will continue to write DC rules and the credit definitions that drive the DC decision making process, O’Malia said.
The move to invite tenders for the secretarial role follows a move in January to ensure credit event decisions are as transparent as possible and free from potential conflict of interest.
The new rules are designed to assuage concerns that the 15-member committee is conflicted in making trigger decisions in the US$14trn credit derivatives market. There was previously no duty for committee members to disclose conflicts of interest.
Among other things, the rules set minimum standards for the internal conduct of DC member firms, including explicit requirements for written policies on the identity of DC decision makers, identification and management of potential conflicts of interest and record keeping.
The changes came in the wake of a series of controversial DC decisions that undermined some investors’ confidence in the decision-making process. For example, in December the committee confirmed that a one-word change in the 2014 credit derivative definitions had led to a surprise split decision on Spain’s Abengoa that triggered payouts on credit default swap contracts issued under the 2003 definitions, but not under the revised 2014 version.
Just last week, a DC committee decision that a credit event had occurred in relation to Norwegian pulp and paper maker Norske Skog led to claims that the credit event process is liable to manipulation by well-informed market participants.
In April, ISDA committed to address antitrust concerns surrounding licensing of credit default swap pricing and index data, following an investigation by the European Commission.
The Commission said in 2013 that ISDA, index operator Markit and 13 investment banks may have breached EU antitrust rules after refusing to license CDS pricing and index data to exchange trading platforms.
In response, ISDA has offered to license all rights to relevant prices for the purpose of exchange trading, clearing and settlement, where terms are deemed fair, reasonable and non-discriminatory.
That episode came after a New York court approved a settlement for a lawsuit in which a group of buyside firms alleged that the industry body and 12 major banks blocked outside participants from creating a credit derivatives exchange in 2008 and 2009.
(David Wigan) OLUSECON Reuters US Online Report Economy 20160503T183807+0000