Argentina Derivatives Update OTC Latin America Panel Derivatives and Risk Management in Mexico - ISDA Conference May 8th, 2001

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Argentina Derivatives UpdateOTC Latin America
PanelDerivatives and Risk Managementin Mexico -
ISDA ConferenceMay 8th, 2001

• J. Andrew Hall - CommissionerSecurities
  Exchange CommissionBuenos Aires, Argentina
  Email jah_at_mecon.gov.ar Tel.
  54-11/4345-2876Web www.cnv.gov.ar

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Contents

• A Customer Daily Quote Sheet, for Motivation!
• Required Infrastructure and Status
• Regulatory Framework
• Knowledge Management
• Basic Products
• Potential Clients and Uses
• A Questionnaire-Survey
• The To Do List
• Resources

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An ARGENTINE DERIVATIVES Daily Customer Quote
Sheet !!!
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An ARGENTINE DERIVATIVES Daily Customer Quote
Sheet !!!

• Term Structure of Interest Rates, July
  1998.(USD, Argen-Dollar, Argentine Peso)

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An ARGENTINE DERIVATIVES Daily Customer Quote
Sheet !!!

• Argen-Dollar Interest Rate Swaps(Floating 1
  Month BAIBOR Vs. Fixed Rate)

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An ARGENTINE DERIVATIVES Daily Customer Quote
Sheet !!!

• Argentine Peso Interest Rate Swaps(Floating 1
  Month BAIBOR Vs. Fixed Rate)

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An ARGENTINE DERIVATIVES Daily Customer Quote
Sheet !!!

• USD-Argentine Peso Cross-Currency Swaps(Fixed
  Pesos vs. 1 Month USD LIBOR)

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Required Infrastructure (and Status)

• Legal
• Tax
• Accounting
• Financial Engineering and Operational

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Required Infrastructure (and Status)Legal (I)

• Currently, argentine bankruptcy law does NOT
  allow netting and margining to take place, EXCEPT
  in the case of the Federal Government as a
  counterparty.
• Thirty-some countries have already modified their
  Bankruptcy Laws to allow ISDA-style Master
  Agreement netting and margining, including Spain,
  Italy, France and Germany, jurisdictions
  traditionally dear to the argentine legal
  community for jurisprudence.
• The Argentine Securities Exchange Commission is
  sponsoring a Bankruptcy Law Reform Project for
  Derivatives to permit netting and margining for
  transactions booked under a master agreement.
• The Bankruptcy Law Reform Project, once enacted,
  will merit clean netting and margining opinions,
  according to Cravath, Swaine Moore, legal
  counsel to ISDA.

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Required Infrastructure (and Status)Legal (II)

• The Argentine Bankruptcy Law Reform Project has
  the support/approval of
• The Senate (Sanctioned in November 2000)
• The Ministry of Economy
• The Ministry of Justice
• The Central Bank
• The Buenos Aires Stock Exchange (Bolsa)
• The Buenos Aires Securities Market (MerVal)
• The Argentine Banking Association
• ISDA - International Swaps Derivatives
  Association
• EMTA - Emerging Markets Association
• The Argentine Bankruptcy Law Reform Project is
  currently pending final approval by the Congress
  (Cámara de Diputados), and...
• Needs YOUR support !!

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Required Infrastructure (and Status)Tax

• Decree 1130/97
• An important milestone concerning the taxation of
  Derivatives in Argentina
• Significantly reduces taxation uncertainty of
  Derivatives.
• According to the IFA International Fiscal
  Association, taxation of derivatives ought to be
  economically neutral.

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Required Infrastructure (and Status)Accounting

• Informe Area Contabilidad Nº 17 Argentine
  Accounting Standards Board (Federación Argentina
  del Consejo de Profesionales)
• A modern, voluntary framework for derivatives
  accounting
• Based on IASC International Accounting
  Standards Committee Rule Nº 32
• Since November 1995
• Final, mandatory accounting framework by IVQ2001

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Required Infrastructure (and Status)Financial
Engineering and Operational

• LIBOR-style Floating Rate Index (BAIBOR,
  Available!)
• Non-Callable Government Bills and Bonds to build
  a Zero-Coupon Curve (BonTes and LeTes,
  Available!)
• Electronic Trading Systems (MerVal SINAC and
  M.A.E. SIOPEL, Available!)
• Money Transfer System (FedWire-style Central Bank
  MEP, Operational!)
• Internationally well-connected communications
  networks

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Regulatory Framework

• Argentina permits the free flow of capital
• Central Bank implements Basle Capital Adequacy
  Standards according to Interest Rate VAR
• Argentine Securities and Exchange Commission
  regulates futures exchanges (Regulation Nº 337 of
  1999, based on the U.S. Futures Industry
  Associations Global Task Forces Financial
  Integrity Recommendations)

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Knowledge Management

• Need for potential future competitors to
  cooperate in workgroups (co-opetition) to
  create the market they will later compete in
• Training and Marketing are KEY to developing
  Argenmtinas derivatives markets
• For international banks, Head Office is a source
  of
• Experience
• Initial staffing for local operations
• Back-Office Technology for risk management and
  processing transactions
• Customers must be educated and marketed before
  they will enter the Risk Management Business

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Initially, the Basic Products!

• FRA Forward Rate Agreement
• Interest Rate and Currency Swaps
• Caps, Floors, Swaptions
• Interest Rate and Government T-Bill and Bond
  Futures
• The customer quote sheet shown is an example of
  what is already being done!

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Potential Argentina Target Clients and
Derivatives Uses

• Commercial Banks (ALM-Asset and Liability
  Management, Reducing Imputed Capital)
• Investment Banks (Structured Note Issues)
• Commercial and Industrial Companies (Bond hedges,
  interest rate, exchange rate and commodity price
  risk management)
• Insurance Companies (synthetic long term assets)
• Pension Funds, Mutual Funds, Money Market Funds
  (interest rate and equity risk management
  products)

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A Survey for You!

• Are you interested in the development of
  financial derivatives for Argentina? Is your
  interest a career play?
• Do you believe its possible to develop financial
  derivatives markets in Argentina?
• Is it likely? This year? In 5 years? In 10?
• Do you have a client in Argentina that could
  benefit from derivatives and risk management? Do
  you have 5? Or 10?
• If you work for a foreign financial institution,
  does your Head Office trade derivatives?
• If yes, could your Head Office provide you with
  information on the development of financial
  derivatives markets in comparable (Brazil, Spain,
  Italy, Australia) jurisdictions and help you
  develop a Business Plan?
• Would you be willing to join a team to develop
  Argentinas derivatives markets?
• Would you participate in an ISDA Survey on this
  subject?

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Your To Do List...

• Organize marketing and educational conferences
  for your clients
• Survey your clients risk management situation
  and needs
• Use the BAIBOR Floating Rate Index for your
  floating rate operations
• Analize the VaR inherent in your Balance Sheet
  and how you could reduce this risk, and BIS
  Imputed Capital, with the aid of FRAs.
• Contact your Head Office Derivatives Team and
  develop a Business Plan
• Support the Bankruptcy Law Reform and contact
  your Congressman
• Support ISDA both financially and with your
  valuable time and expertise

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Resources...

• For Institutional Support...ISDA
  (www.isda.org), andADA Argentine Derivatives
  Association (www.ada.org.ar)
• For Professional Development...GARP Global
  Association of Risk-Management
  Professionals (www.garp.com)
• Build your Library...(Search www.amazon.com
  Books for derivatives - 765 items! or Risk
  Management 1,487 items!, most popular always
  listed first)
• Search the Web...(The www.google.com search
  engine finds 7,300 pages with the keywords
  derivatives risk management argentina)

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Its Your Market! Its Your Future! Rise
to the Challenge! Get I-n-v-o-l-v-e-d!