Credit derivatives professionals slam IAS

Financial market participants have slammed International Accounting Standard 39 (IAS 39) for financial hedge instruments, according to a British Bankers’ Association (BBA) credit derivatives survey.

The derivatives rule will require companies to measure financial instruments by market value. Opponents fear this will lead to unnecessary volatility in company accounts.

In the survey, conducted every two years, 47% of respondents thought IAS 39 would have a negative impact on the synthetic market, compared with 37% who were neutral and only 16% that were positive. IAS’s impact on the vanilla credit default market was less controversial, with 26% believing it would be negative, 37% neutral and 16% positive.

Responses to the Basel II bank capital adequacy initiative were more popular, with 60% of respondents believing it would be beneficial for the vanilla market and 10% negative. However, the corresponding figures for synthetic credit were 35% and 30%, respectively.