Firms Flock To ISDA Asia Portfolio Reconciliation

Eleven firms have signed up to the International Swaps and Derivatives Association’s Asia Pacific Portfolio Reconciliation Memorandum of Understanding, within two days of its release. Several more are expected in coming weeks.

  • 05 Jan 2011
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--Eleni Himaras

Eleven firms have signed up to the International Swaps and Derivatives Association’s Asia Pacific Portfolio Reconciliation Memorandum of Understanding, within two days of its release. Several more are expected in coming weeks.

The 11 that have signed up to the MoU are Bank of Tokyo-Mitsubishi, Morgan Stanley and four of its subsidiaries, National Australia Bank, Nomura Securities, Standard Chartered, Sumitomo Trust and Banking Company and UBS. Portfolio reconciliation involves verifying the accuracy of a firm’s trades by comparing two counterparties’ records of a bilateral over-the-counter derivative portfolio as of a given business date.

The MoU, which sets an industry standard for performing weekly reconciliations, is considered a drastic shift from current market practices in Asia. Most firms in the region, aside from the major dealers, do not regularly reconcile their portfolios. In the U.S. and Europe, it has been common practice for more than three years. “The regulators here don’t recognize it yet as market best practice,” Keith Noyes, regional director of the Asia Pacific at ISDA in Hong Kong told Derivatives Week. “Without that regulatory push, and the fact that Asian counterparties have done well through the financial crisis, it’s been hard for a firm to dedicate the resources, human or IT, to enable the portfolio reconciliation.”

He said, however, that the two pilot runs implemented by ISDA in the past year quickly won over the doubting firms. “What happened is that people actually discovered that there were discrepancies and as a result, losses were averted,” Noyes said. “It only takes one or two times going through the exercise and finding that there is a discrepancy and solving something that could have led to dispute to realize the value.”

The standards are set with a much lower bar than those of the U.S. and Europe in order to allow Asian firms to become more comfortable with the practice. The MoU stipulates that firms should reconcile portfolios weekly with counterparties with whom they have more than 1,000 trades. The reconciliation can be done manually or electronically. This differs from the other markets in which reconciliations are done daily between counterparties with at least 500 trades. “It’s easier for them to sign up now that it’s nearly without any hurdles,” said Jeffrey Kan, director of market infrastructure for Asia Pacific at ISDA. “At the moment the prime focus is to get as much adherence as possible.”

Nine firms participated in the initial pilot run and 19 participated in the second. Noyes and Kan said they expect at least that many to sign on to the MoU.

  • 05 Jan 2011

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1 Citi 325,692.23 1268 8.08%
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4 Barclays 245,918.13 920 6.10%
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1 BNP Paribas 45,800.95 180 7.01%
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4 Credit Agricole CIB 33,170.05 159 5.08%
5 SG Corporate & Investment Banking 32,244.80 125 4.94%

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Rank Lead Manager Amount $m No of issues Share %
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1 JPMorgan 13,643.79 60 8.96%
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5 UBS 8,136.41 33 5.34%