SWAP DEALERS UNVEIL STANDARD CONTRACT
The International Swap Dealers
Association has developed the first standard form contract for
use by arrangers of currency and interest rate swap
transactions, said Thomas Jasper, the Association's
co-chairman.
    The contract, unveiled at a press conference , is expected
to make the 300 billion dlr a year swap market more efficient,
he said. "The contracts wil accelerate the process and reduce
the expense of swap documentation," Japsper said.
    Privately, eurobond traders estimate that about 80 pct of
all new issues eventually become part of either an interest
rate or currency swap.
    An interest rate swap occurs when two issuers, usually
acting through a bank middleman, agree to accept each other's
interest payments on debt securities. Usually, the issuer of a
floating rate debt security swaps into fixed-rate debt and vice
versa. But the obligation for repayment of the debt remains
with the original borrower.
    Bank regulators have become concerned about the use of
swaps because the middleman, usually a bank, takes on some
portion of the risk but is not required to show it on the
balance sheet as a liability and may not have sufficient
capital to cushion it.
    Kenneth McCormick, a co-chairman of the ISDA and president
of Kleinwort Benson Cross Financing Inc, said the Bank of
England and the U.S. Federal Reserve Board were expected later
today to announce joint proposals for setting minimum capital
standards for counterparties in swaps.
    The standards are part of the recently announced
convergence agreement between the two countries in which
regulators have attempted to set similar capital requirements
for institutions.
    McCormick told reporters the ISDA was concerned that a
"level playing field" be maintained in the swaps market.
    He said if U.K. And U.S. Banks were required to hold more
primary capital against swap transactions than is the current
practice, the additional costs would have to be passed on to
issuers.
    The issuers might then choose to do business with
lower-cost banks which are not subject to U.S. Or U.K. Banking
rules.
    He said the ISDA had been working on a code of conduct for
swap dealers as part of its self-regulatory effort.
    That code should be completed within the next few weeks, he
said.
 REUTER
