|Strategy & Sales|
24 September 2019 08:50
Head of Market Structure & Regulatory Customer Engagement
+44 20 7085 1271
EONIA under the old methodology will cease to be published on 30 September, then on 2 October at 8:00 am CET ESTR will be published for first time, with revised EONIA (fixed as ESTR + 8.5 bps) published at 9:15 am CET.
This change in timings to publish fixings T+1 under ESTR rather than T0 under old EONIA methodology may present some operational challenges initially for market participants, but as we outlined in our Three's a crowd article back in August, the disruption now will be limited given EONIA under its revised methodology will continue to be published.
Some key points to be aware of in the coming weeks:
The move to flat could be bumpy
Latest expectation is that in Q2 2020 CCPs will switch discounting curves from EONIA to ESTR flat. Although final timing of this is not yet published, it will be driven centrally by the CCPs and result in a change in collateral valuations facing clearing houses.
What is less clear is what will then happen in the bi-lateral market. So far there has been limited discussion around this in the industry but a consensus on timing and methodology for valuation changes is needed. Ideally the market will follow the CCPs' lead, but there are risks that there will be fragmentation here. Counterparties will move or not depending upon their positions.
A protocol could be a way forward, however it would be voluntary and there is no guarantee that all market participants would adhere to it. Similar concerns within the UK market.
But these are concerns for next year, for next week discounting will continue off recalibrated EONIA with the introduction of ESTR, for both cleared and non-cleared.
Phil Lloyd, NWM Sales
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