China rates swap prices diverge on spotty CVA practices

Most local banks not passing on capital charge to clients, say traders

price disparities in evidence
Inconsistency in applying credit valuation adjustments is leading to price disparities

Traders are complaining of price distortions in the Chinese interest rate swap market due to patchy treatment of counterparty credit risk among local banks.

It is standard practice among international dealers to include a credit valuation adjustment (CVA) in the price of a swap, to compensate the dealer for counterparty credit risk. China's version of the Basel III bank capital rules also requires local banks to hold capital against this risk. However, there is no requirement to pass that cost

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact [email protected] to find out more.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: