Industry Bodies Discuss Application of Basel II to Trading Activities

The International Swaps and Derivatives Association (ISDA), the Institute of International Finance (IIF), the London Investment Banking Association (LIBA) and the Bond Market Association (BMA) met with a group of banking and securities regulators in New York to discuss the consultative document issued jointly by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions (IOSCO) on the application of Basel II to trading activities and the treatment of double default effects. Overall, the associations are pleased with the proposals put forward in the field of counterparty credit risk and thanked the regulators for the openness and co-operation with which they have sought to work with the industry. The high degree of engagement with the industry has been most pronounced on Strand 1 (counterparty credit risk), and to a lesser extent, Strand 2 (double default risk) of the review. The dialogue on the complex Strand 3 (trading book issues and unsettled transactions), by contrast, has suffered the most from time constraints and has thus benefited the least from the thorough discussion that the subjects would merit. The proposed changes in this area are substantial and need further discussion. The formal consultation phase is therefore a critical step, which the associations hope will produce much needed changes to the package.


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