EU Working Group on Risk-Free Rates Publishes Recommendation on Voluntary Compensation for Swaptions

The EU Working Group on Risk-Free Rates has published its recommendation on voluntary compensation for swaptions affected by the CCP discounting transition from EONIA to €STR. The recommendation follows the Working Group’s March 2020 consultation on the topic. The Working Group recommends that counterparties exchange voluntary compensation for relevant legacy swaption contracts and that market participants contact their swaption counterparties promptly to determine whether compensation is required. The Working Group believes the three most feasible options for the timing and methodology of voluntary compensation are:
 

1. A single-date compensation;
2. A single-date notional/strike adjustment; or
3. A cash compensation at the expiry date of the swaps.

 
Adherence to the Working Group’s recommendation is entirely voluntary. The recommendation is based solely on responses received to the March 2020 consultation.
 
View the ECB's recommendation on voluntary compensation for legacy swaptions.
 
View details of the EU Working Group on Risk-Free Rates' consultation on voluntary compensation for legacy swaptions. 
 
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