Prices diverge as CVA exemption remains in limbo
Dealers face pricing headache as they wait to see whether Europe's version of Basel III will exempt corporate customers from the CVA capital charge
Uncertainty about whether derivatives trades with corporates will be exempt from the credit value adjustment (CVA) capital charge is causing pricing disparities in swaps transactions, with dealers complaining they are being forced to bet on the outcome of discussions on European capital rules.
The Basel III framework directs banks to hold CVA capital against derivatives counterparty exposure, but
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