The International Swaps and Derivatives Association is preparing to launch in the coming weeks a daily Hong Kong dollar interest-rate swap fix that would act as the benchmark for all derivatives transactions longer than one year. The move is expected to boost volumes and aid the development of more sophisticated interest-rate instruments, such as constant-maturity swaps and cash-settled swaptions. Angela Papesch, head of ISDA's Asia-Pacific office in Singapore, said, it is looking to go live around June 25. The association will conduct a daily poll of 16 firms to determine the floating rate they offer counterparties rated single A and above on swaps with maturities of one through five, seven, and 10 years, she explained.
Banks to be polled include Barclays Capital Asia, Citibank, HSBC, JPMorgan and Standard Chartered Bank, according to dealers.
Aaron Poon, Hong Kong head of rates trading at JPMorgan, said the new benchmark will facilitate the launch of products such as constant-maturity swaps, constant-maturity Treasuries and cash-settled swaptions. "This should push the development of the market," he added, noting that volumes in the domestic interest-rate market could grow by over 20% within six months of launching the benchmark.
"This is definitely a positive," said Dennis Wong, Northeast Asia regional head of interest-rate derivatives at Standard Chartered Bank in Hong Kong. He continued that with the development of cash-settled swaptions the product will attract greater interest from corporates as well as from offshore players.
The swap benchmark rate will be set at 11 a.m. each day. From the 16 submissions, the top and bottom four values will be removed, and an average--to three decimal places--will be calculated from the remaining eight. This is the first ISDA fixing in non-Japan Asia. Officials at Barclays, Citibank and HSBC declined comment.
