INTERNATIONAL: ISDA Launches Risk-free Rate Adoption Indicator

Thursday July 30 2020

On 28^th July 2020, the International Swaps and Derivatives Association, Inc (ISDA) announced that it has launched a new indicator to monitor the adoption of alternative risk-free rates (RFRs) in derivatives trading.

The indicator, developed in conjunction with Clarus Financial Technology, will provide a monthly snapshot of RFR trading activity in interest rate derivatives (IRD) markets, based on global cleared over the counter and exchange-traded derivatives data from seven central counterparties spanning six currencies.

The indicator is intended to help derivatives market participants keep tabs on progress to shift to RFRs ahead of the end of 2021, when the UK Financial Conduct Authority (FCA) will no longer compel or persuade banks to make LIBOR submissions.

The RFR Adoption Indicator tracks the percentage of cleared IRD trading activity that references RFRs, measured by DV01. DV01 is a gauge of risk that represents the valuation change in a derivative contract resulting from a parallel 1 basis point shift in the swaps curve. The RFR Adoption Indicator was at 4.7% in June 2020.

ISDA and Clarus have also developed a number of sub-indicators that provide additional granularity based on currencies, tenor and over the counter versus exchange-traded IRD, as well as notional amount traded.

Click on the above link for further information.