ISDA Reiterates Concerns Over Complex Deals Proposals To SEC

The International Swaps and Derivatives Association has met with the Securities and Exchange Commission to explain its objections to the complex structured finance guidance, but Kimberly Summe, ISDA's general counsel in New York, admits the trade association is no closer to knowing the outcome of the review period.

  • 17 Dec 2004
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The International Swaps and Derivatives Association has met with the Securities and Exchange Commission to explain its objections to the complex structured finance guidance, but Kimberly Summe, ISDA's general counsel in New York, admits the trade association is no closer to knowing the outcome of the review period.

ISDA does, however, feel it is making progress with one of the most important points. The guidance may hold banks responsible for the accounting disclosure and tax treatment of their customer's transactions. "The bank as the counterparty cannot possibly know how a client is going to account for a trade," Summe said.

ISDA is also questioning three other areas. The first is a policy which requires firms to maintain records of deals they decided not to do. ISDA fears if banks have to write a five-page memo on why they decided not to do a deal, these could be used to prosecute other firms. "They want firms to be prosecutorial archivists," she said.

The trade association's second objection is the guidance defines structured finance too broadly. It lists 12 characteristics that could potentially require transactions be reviewed by a bank's more senior personnel review. "Some of those characteristics in-and-of themselves are characteristics you could see in plain vanilla OTC swaps," Summe said.

ISDA is also calling for a principles-based approach, minimizing a firm's legal and reputational risk by giving them flexibility to comply, rather than the prescriptive-based approach taken by the guidance in which derivatives houses are given a check list of things to satisfy.

  • 17 Dec 2004

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