DVA HEDGES could be undermined by rule change
ENERGY TRADERS get good news on capital from Mifid II
SEFS – auto-quote race hots up
COMMENTARY: Mixed news on CVA and DVA
Regulatory developments on credit valuation adjustments (CVA) and debit valuation adjustments (DVA) bring good and bad news for banks and corporates active in the derivatives market. The news that US accounting standards setters would follow their international peers in shifting DVA out of the earnings statement was generally welcomed last December, but it will cause problems for banks that have already hedged the DVA away, leaving them with a naked hedge sitting in their income statement and the DVA itself in the 'other income' category.
The numbers involved can be large. In the third quarter of last year, Credit Suisse recorded a Sfr370 million DVA gain on structured notes. Banks using international accounting standards hope they may be able to carry on hedging.
In the world of CVA, banks and corporates are protesting about European Banking Authority (EBA) guidelines that would partly reverse the CVA exemption granted to trades with non-financial counterparties. The EBA argues dealers are not holding enough capital to make up for the lack of CVA at their non-bank customers.
STAT OF THE WEEK
QUOTE OF THE WEEK
"In late 2014, it might have taken me 30 minutes to get a price on a market-agreed coupon curve, whereas now I can get it done in minutes if not seconds. And outrights are now largely auto-quoted, so a price can come back to you in milliseconds. It is essentially a stream of liquidity you can hit or lift" – New York swaps trader
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The Central Bank of Hungary has offered up 1 trillion forint notional of cheap interest rate swaps, driving down bids for receiver swaps and government bond yields, say dealers