The International Swaps and Derivatives Association has closed the adherence period for its controversial Novation Protocol with almost 2,000 signatories. The protocol addresses timing and procedures for the assignment of interest rate and credit derivatives transactions to a third party, and is intended to help tackle the potential for backlogs and uncertainty associated with the transfer of derivatives trades.
In a letter to the Federal Reserve in early October, 14 major credit derivatives dealers committed to forcing clients to sign up to the protocol by refusing to accept assignments unless the transferrer had signed and adhered to the protocol.
But many buy-side clients baulked at the prospect of being press-ganged into signing the protocol - which required an overhaul of their existing systems and operations for dealing with assignments - and protested, notably hedge fund organisation the Managed Funds Association and some large clients like US West Coast bond fund giant Pacific Investment Management Company (Pimco).
In the event, some of the largest fixed-income clients on the street signed up to the protocol by its close on November 30 - including Pimco, Fidelity, Credit Suisse Asset Management, Nuveen and Vanguard. One head trader at a major buy-side firm who asked not to be named says: "We really didn't have any choice but to sign up if we wanted to keep on doing assignments, so we can only hope the dealers will stick by their commitment to make the protocol work."