Banks take flexible approach to pricing netting risks

Dealers are adjusting CVA prices, depending on their view of the legal netting opinion


Derivatives traders at a handful of major banks are adjusting their swaps pricing to reflect their view of the strength of a counterparty's legal netting opinion.

Netting opinions allow a dealer to treat its counterparty's exposures as net instead of gross, which can dramatically shrink the credit valuation adjustment (CVA) capital requirement for a portfolio. While a legal opinion is required for a bank to net a client's exposures for capital purposes, the pricing of the trade has no such restr

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