Dealers cast doubt on swaptions compensation plans

Redress scheme for victims of post-Libor valuation change may fail due to “cherry-picking” fears

Swaptions-compensation-worries montage

Rates traders are sceptical that swaptions users will agree to voluntarily compensate counterparties who lose out following a change of swap discount rate, casting doubt on a mechanism that dealers say is a crucial part of the industry’s broader Libor transition efforts.

The discount and collateral interest rates for cleared euro and US dollar interest rate swaps will change to new Libor successor rates later this year, which means legacy swaptions will deliver into a different form of swap

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