Transparency on derivative products stipulated by local authorities

Posted by Fairmat Srl on 25 June 2013 | 0 Comments

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In the last decade, derivative financial instruments usage has been widespread in several sectors and viewed as a phenomenon of epoch-making impact. During this time, in Italy, the use of derivatives by local authorities was not regulated. This fact, together with the lack of information and knowledge in some cases has led to the incorrect use of financial instruments.

Although three cognitive parliamentary inquiries were made in 2005, 2007 and 2009 there is still inadequate information about the position of financial derivatives stipulated by Italian local authorities (municipalities, regions, provinces and the state itself). It is still unknown how many derivative contracts were entered into by local authorities with Italian and foreign bank counterparties and what kind they were. As a result the implications of risk and possible economic and financial effects to be expected are difficult to calculate. Without a valid assessment of the overall portfolio of these contracts, these questions will remain unanswered. Assessments must be quantitative and should include the estimation of the risk associated with the rise or fall of the driving markets.

For the reasons stated above, the AssoTAG association and the Consumers Association (Feder Consumatori) are promoting a project (driven by volunteers) that aims to map and assess all derivatives agreements between local authorities and financial counterparts. Fairmat is proud to participate and contribute to this project which promises to increase transparency, by offering its pricing platform and the required support for performing the pricing and risk analytics required by this study.

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