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.
  

