JPMorgan is calling for its derivatives counterparties to be more transparent about ring fencing of international branches. The move comes hot on the heels of the firm resolving a disagreement with a European trading partner over a derivatives trade it executed with the European firm's Argentinian branch. The disagreement arose in spite of the trade being covered by an International Swaps and Derivatives Association Master Agreement with the European firm's head office, illustrating that in spite of documentation designed to close such loopholes, there is significant room for interpretation on the ring fencing issue, said Christina Leijonhufvud, head of country risk management in New York, declining to reveal specifics of the contract. It is important that any ring fencing of subsidiaries be made clear at the beginning of an agreement in order to allow firms to correctly price the risk of a trade, she argued.
Ring fencing has remained an issue in the bank-to-bank market since the U.S. Supreme Court declined in 1992 to hear a final appeal in a dispute between Citibank and Wells Fargo Asia over Citibank's liability on a deposit made with its Manila branch, noted Rob Robinson, partner at Sidley Austin Brown & Wood in New York.
