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Hedge Accounting on Novation to CCP Saved?

Risk Magazine is reporting that transactions cleared voluntarily will continue to benefit for hedge accounting rules under International Accounting Standards Board (IASB) proposals.

As discussed previously in this blog post, in its February 2013 exposure draft entitled “Novation of Derivatives and Continuation of Hedge Accounting”, the IASB had proposed that hedge accounting would be lost in the event of a voluntary novation (as opposed to a novation required by law) because the original hedging instrument no longer existed.  However, it now seems to be the case that, following a meeting of its board of directors on 22 May, the IASB has decided to extend the protection of hedging accounting to voluntary novations.  Although questions remain as to whether past novations will be grandfathered, the article notes that this development has largely been welcomed by the market.

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