Leading derivatives houses, including JPMorgan, Goldman Sachs, and Citibank, have set a date to start using the new equity derivatives definitions in an attempt to avert legal and basis risk stemming from a chaotic switchover if firms started using the documents at different times. In a meeting organized by JPMorgan, 16 firms agreed to start using the new International Swaps and Derivatives Association definitions on May 1.
In early January, derivatives houses were bracing for a difficult period because different houses wanted to implement the definitions at different times. For example, Goldman was planning to start using them this month whereas JPMorgan wanted to start in March or April (DW, 1/13).
The agreement is informal and non-binding, but gives institutions a reasonable date as a goal for implementation, dealers said. Nick Fry, assistant manager for equity derivatives documentation at Deutsche Bank in London, said the date gives everyone enough time to sort out their systems. "It is very helpful," he added.
JPMorgan has agreed to host a second meeting six weeks prior to the date to obtain updates from participants on their progress and revise the date if necessary. Tim Hailes, senior equities lawyer at JPMorgan in London, said that no participant, however, wants the adoption to be delayed past the end of June.
