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International Valuation Standards Council News Update 27 February 2012 Developing global valuation standards IVSC to address Valuation of Derivatives The International Valuation Standards Council (IVSC) has launched a project aimed at bringing greater consistency and understanding of the techniques used for valuing financial derivatives. The valuations placed on the portfolios of derivative instruments held by financial institutions have been the subject of extensive scrutiny by financial regulators following the 2008 financial crisis. It is therefore the IVSC’s objective to provide greater transparency around the valuation process in order to assist management, investors and other stakeholders in understanding the valuations. The project is being led by Ana Castañeda a member of the IVSC Standards Board and CEO of Intermoney Valora Consulting in Madrid. Ms Castañeda commented: “There are many academic texts available on the mathematical models used for valuing derivative instruments, all of which involve complex maths. The IVSC’s role is not to endorse or explain these methods in detail but to produce a high level overview of the principles on which they are based, the key inputs and the sensitivity of different types of models to those inputs.” The IVSC’s Technical Director, Chris Thorne added: “Our role as a standard setter is primarily investor protection. Investors and others who rely on valuations do not need to understand how the highly technical methods used for valuing complex financial products work, but they do need to have sufficient understanding of the fundamental criteria on which they are based so that they are not taken by surprise when there is a change in those criteria.” The IVSC Standards Board has formed an expert working group comprising of representatives of some of the major banks including UBS, Deutsche Bank and HSBC, independent consultants and buy side investors to advise it on the project.
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Transcript of Ivsc
International Valuation Standards Council
News Update
27 February 2012
Developing global valuation standards
IVSC to address Valuation of Derivatives
The International Valuation Standards Council (IVSC) has launched a project aimed at bringing greater consistency and understanding of the techniques used for valuing financial derivatives. The valuations placed on the portfolios of derivative instruments held by financial institutions have been the subject of extensive scrutiny by financial regulators following the 2008 financial crisis. It is therefore the IVSC’s objective to provide greater transparency around the valuation process in order to assist management, investors and other stakeholders in understanding the valuations. The project is being led by Ana Castañeda a member of the IVSC Standards Board and CEO of Intermoney Valora Consulting in Madrid. Ms Castañeda commented: “There are many academic texts available on the mathematical models used for valuing derivative instruments, all of which involve complex maths. The IVSC’s role is not to endorse or explain these methods in detail but to produce a high level overview of the principles on which they are based, the key inputs and the sensitivity of different types of models to those inputs.” The IVSC’s Technical Director, Chris Thorne added: “Our role as a standard setter is primarily investor protection. Investors and others who rely on valuations do not need to understand how the highly technical methods used for valuing complex financial products work, but they do need to have sufficient understanding of the fundamental criteria on which they are based so that they are not taken by surprise when there is a change in those criteria.” The IVSC Standards Board has formed an expert working group comprising of representatives of some of the major banks including UBS, Deutsche Bank and HSBC, independent consultants and buy side investors to advise it on the project.
An exposure draft for public comment is anticipated in the autumn of 2012.
Additional Information on the project
Banks and other financial institutions are required to value their interest in derivative instruments in their financial statements under the IFRSs and also in the calculation of their solvency ratios, for example under Basel III (Banks) or Solvency II (Insurers). Many investment funds hold instruments and are required to regularly report the value of their holdings to investors. Banks and other financial institutions are required to value their interest in derivative instruments in their financial statements under the IFRSs and also in the calculation of their solvency ratios, for example under Basel III (Banks) or Solvency II (Insurers). Many investment funds hold instruments and are required to regularly report the value of their holdings to investors. Banks and other financial institutions are required to value their interest in derivative instruments in their financial statements under the IFRSs and also in the calculation of their solvency ratios, for example under Basel III (Banks) or Solvency II (Insurers). Many investment funds hold instruments and are required to regularly report the value of their holdings to investors.
Membership of the Expert Working Group
The following are members of the Expert Working Group: • Ana Castañeda, Intermoney Valora Consulting • Paul Hawkes, UBS • Laurence Levine, McGladrey • Mark Wilson, Deutsche Bank • Chiu-Wang (Leo) Chan, US Securities and Exchange Commission • Lucas Duplá García-Pardo, CECA (Spanish Confederation of Savings
Banks) • Cindy Ma, Houlihan Lokey • Laurent-Olivier Valigny, HSBC • Stuart Sarter, Legal & General Investment Management Limited
For further information on the IVSC please contact: Marianne Tissier, Executive Director, IVSC
click here to email. Tel: +44 (0)20 7374 5585
