The Ides of EMIR

We recently wrote about the first deadline for clearing in the United States, which applies to swap dealers, major swap participants and active funds. We now have official confirmation of the deadline for a number of requirements under the European Market Infrastructure Regulation (EMIR). With the publication this past Monday of the regulatory technical standards under EMIR, that date is now confirmed as March 15 ‒ less than two weeks away.

Under the CFTC rules in the US, non-financial end users will not be subject to the clearing mandate. That is not the case in Europe, where non-financial end users (called non-financial corporations, or NFCs), depending on their level of activity, may be required to clear transactions if their derivatives activity exceeds thresholds of €1-3 billion (after hedging), depending on asset class.

But the immediate focus under EMIR is not clearing, but several other requirements.

In order to assist end users in navigating the EMIR rules to determine which provisions they need to comply with, we held a webinar this week. Our public policy team was joined by end user representatives who have been at the forefront of derivatives regulatory developments (you can access the slides from the webinar here).

The webinar focused primarily on the compliance needs of European NFCs. Of particular interest were the challenges faced by smaller firms who may not have the resources to keep up with the rapidly changing regulatory landscape, nor with the new obligations EMIR creates for them. As such, a key objective of the webinar was to increase awareness of the obligations and promote compliance.

Equally important to convey was that even if NFCs do not face a clearing requirement from EMIR, they will face other requirements under this Regulation, some applying as soon as March 15. And of course, their counterparties ‒ the providers of OTC derivatives ‒ will be subject to all the new EMIR rules, which will affect the pricing and availability of OTC derivative products for everyone.

On March 15 the confirmations obligation kicks in for all entities in scope under EMIR (financial corporations (FCs) and NFCs alike), and EMIR requires that all such entities have procedures and arrangements in place to confirm transactions. For subgroups of FCs and for those NFCs that are likely to exceed the above-mentioned clearing threshold (sometimes referred to as NFC+s), there are additional obligations in the form of required daily mark-to-market and mark-to-model valuations.

That fast-approaching Friday, March 15, is also the date by which potential NFC+s are required to declare to their competent authority if they exceed the clearing threshold. Such thresholds are set by asset class (again, €1-3 billion exclusive of “hedging” transactions), and breaching a threshold in any asset class creates the obligation to clear all asset classes.

Later in the year (around Q3), all entities face obligations that address portfolio reconciliation, portfolio compression, and dispute resolutions. Reporting to trade repositories begins for interest rates and credit derivatives, effective 90 days after a trade repository has registered. Other asset class reporting will be phased in beginning in 2014. Finally, mandatory clearing will start some time in the summer of 2014, assuming all goes well with the CCP authorization process.

Clearly, a lot lies ahead. ISDA is committed to work closely with the regulatory community and will continue – through the Regulatory Implementation Committees (RICs) that have been set up for this purpose – to interpret the new obligations, and to assist members with compliance.

Be Pro-Active with One Month to Clearing

March brings the first day of spring and the first days of mandatory swap clearing in the United States and Europe. In this derivatiViews, we focus on the imminent deadline in the United States. Next time we will focus on the state of mandatory clearing in Europe in light of last week’s action in the European Parliament.

The first wave of mandatory clearing in the United States comes into effect on March 11, 2013. The CFTC has specified both the categories of entities that must begin clearing, and the types of transactions that must be cleared, commencing on that date.

Swap dealers, major swap participants and active funds must begin clearing several categories of interest rate swaps and four categories of CDX and iTraxx credit default swaps. This timetable has been fixed since last November, when the categories of swaps subject to mandatory clearing were finalized by the CFTC.

Even with the advance notice, we know that many market participants that will be affected by this development, particularly the active funds, face compliance hurdles. In order to assist our member firms, we have prepared a standard form letter that can be sent to active fund customers to alert them to the requirements. Whether you are a potential sender of the letter or a potential recipient, we urge you to take the time to read it.

Keep in mind that some funds may still be determining whether they hit the “active” threshold of 200 trades a month which determines if they must comply with this first-wave clearing mandate. And swap dealers face a challenge in determining which of their customers hit the threshold because that determination is not just a function of their trades with the fund, but all the trades that the fund does with any counterparty.

The ISDA August 2012 DF Protocol and our ISDA Amend process provide a convenient mechanism that funds can use to communicate with their dealer counterparties about whether they are an active fund and, therefore, subject to the clearing mandate on March 11.

Much of the DF Protocol relates to business conduct requirements that come into effect on May 1 (as extended pursuant to a no-action letter at the end of last year). However, for entities that face the March 11 clearing mandate, the deadline is now, for all intents and purposes. As we urged in our December derivatiViews linked above, proper planning for Dodd-Frank requirements is best done as early as possible. Don’t wait until the last minute.

As always, the ISDA staff is available to provide assistance as these deadlines loom. The ISDA website, in particular our Dodd-Frank Documentation Initiative page, is your best first stop to understanding what lies ahead in the United States.

We will march on to clearing in Europe next time.

No Action ≠ Do Nothing

As the year draws to a close, we are seeing a steady stream of no action and other determinations coming out of the CFTC. ISDA has been actively involved in seeking those decisions from the CFTC in response to members’ concerns and very practical considerations that made compliance in the timeframes required increasingly challenging as deadlines loomed. We and market participants are grateful for the responsiveness of the CFTC to the concerns that have been raised. We believe that the dialogue we have established in this process will serve the industry well as regulations come into effect in 2013.

We have just posted a presentation on our website that gives an update on the status of the various no-action requests. Where the request has been granted, links are included to the letter issued by the CFTC, which includes the terms and conditions on which the relief was granted.

An important lesson to take away from the no action process is that the industry’s efforts to achieve compliance with new regulations must proceed with an undiminished level of intensity even in the face of the actions taken by the CFTC. This is for a number of reasons.

First, certain requirements are not delayed. Most importantly, reporting for credit and interest rate swaps kicks in at the end of the year. And, while reporting for equity, FX and commodity trades has been delayed, it is only until Feb. 28, 2013. So January will be busy regardless.

Second, one of the reasons that the CFTC was receptive to providing these targeted delays in effectiveness of certain provisions was because they saw demonstrable efforts being made toward compliance. For example, the ISDA Dodd-Frank Protocol now has over 4,000 adhering parties, and that number is growing steadily. But the rate of uptake on questionnaire delivery via our ISDA Amend solution  lags behind. So ISDA and market participants must show that the additional time will be warranted to  achieve greater compliance rates with the use  of these effective tools.

Finally, more deadlines will loom next year as the requirements in Europe begin to take effect. We just heard that the timetable is jelling around reporting starting mid year, reconciliation and dispute resolution in late summer and frontloading of trades into clearing later in the year. Clearing mandates won’t likely apply until summer 2014, but many other steps will need to be taken in anticipation of those mandates. So the short delays achieved in the US through the no action process will only lead to a compression of compliance activity globally.

ISDA stands ready to assist its members in understanding and implementing these regulatory changes. We will also maintain an active dialogue with regulators to help them understand where the pressure points may be in the compliance process so that the changes are implemented in a way that achieves policy goals with the least disruption to market liquidity and the ability of companies to hedge risk.

So enjoy the holidays and be prepared to join with us as we continue to address the major changes underway.

IM getting serious

Click to open ISDA’s new Initial Margin For Non-Centrally Cleared Swaps Analysis

A key recommendation of the G20 2009 Pittsburgh Communique was to enhance systemic resiliency by reducing bilateral counterparty risk and mandating central clearing of “standardized” OTC derivatives. ISDA and market participants are fully supportive of the G20’s clearing initiatives. Today, more than half the market is cleared and more clearing is on the way.

However, most industry estimates expect that 20 percent or more of the notional value of OTC derivatives cannot be and will not be clearable. Such swaps play an important economic role for the global economy, ranging from housing to corporate financing. Policymakers are hoping to eliminate counterparty risk of these unclearable trades by proposing margin requirements – both initial (IM) and variation margin (VM) – for them.

We fully support mandatory exchange of VM among covered entities. Experience (good and bad) has demonstrated that the practice of frequently exchanging the unrealized mark-to-value fluctuations between two parties is beneficial in reducing counterparty risk. It avoids the build-up of large unrealized positions that could become destabilizing in periods of market stress. This is a widely adopted practice in the OTC derivatives marketplace. And, had this practice been followed – which was NOT the case with AIG and certain monolines in the US – counterparty risk would not be the issue it has become today for the OTC derivatives industry. So, the requirement for VM exchange alone would be more than enough to address counterparty risk concerns.

However, while we support the use of VM, the same can not be said for imposing mandatory IM on counterparties. A rudimentary risk/benefit exercise reveals that the approach is flawed. We see minimal benefits in terms of incremental risk reduction – above and in excess of what is already provided by capital requirements.

Instead, we see huge risks in the making. The outright quantum of margin required under these proposals, even in “normal” market conditions, is significant.

Take, for example, the data that is coming out of the QIS study that the BCBS/IOSCO is conducting. The numbers are revealing. Even if we take the most optimistic scenario (where ALL market participants use some form of internal model to maximize netting benefits), we still estimate incremental margin requirements of approximately $800 billion. This is an amount of incremental collateral which, even under normal circumstances, is challenging to raise.

What’s worse: we know that IM requirements in stressed conditions could go up by at least three times, raising potential requirements at a time when liquidity will be most needed. This is a clear recipe for disaster, only exacerbating systemic risk. And as to the proposed use of thresholds to alleviate the IM impact, at times of crisis, they just make the problem worse. It’s a message we plan to share with supervisors and regulators around the world. (ISDA’s recent analysis of data regarding IM estimates and their impact is here.)

In short, ISDA believes that mandatory, risk sensitive IM will not achieve its purported goals. We instead advocate a three pillar framework for ensuring systemic resiliency: a robust variation margin framework, mandatory clearing for liquid, standardized products and appropriate capital standards.

No Margin for Error

On Friday, ISDA submitted its response to the BCBS/IOSCO proposal on Margin Requirements for Non-Centrally Cleared Derivatives. This is one of the most important issues today in financial regulation. It is not hyperbole to suggest that the future of OTC markets depends on getting it right. Less apparent, but equally true, is that the resiliency of the financial system does too.

Broadly speaking, the BCBS/IOSCO proposal aims to reduce counterparty risk, a goal ISDA shares. But they seek to do it by imposing a universal two-way initial margin (IM) requirement on all covered entities. Covered entities are defined as all OTC derivatives participants except for non-systemically important corporates, sovereigns and central banks. The proposals also call for variation margin (VM) exchange by all covered entities. And if the above were not enough, the proposals call for collateral exchanged to remain segregated and not be re-hypothecated.

It is obvious that the BCBS/IOSCO proposal aims to replicate the mechanics found in the context of clearing. CCPs seek to completely insulate themselves through the imposition of VM (which settles unrealized gains/losses), and IM (meant to provide a cushion to absorb losses that may materialize in trying to cover its risk if a counterparty defaults). By doing so, CCPs effectively neutralize (to a 99% confidence interval) counterparty risk.

And there lies the rub.

In the context of a CCP, such a minimization of counterparty risk is appropriate and the utilization of VM and IM are tools (along with their default funds) used to accomplish this objective. CCPs are not supposed to take credit risk themselves, but to pass through the benefits associated with multi-lateral clearing. However, extending these concepts to the bilateral context is inappropriate, because the parties involved are typically creditworthy entities on their own, and back their creditworthiness with their own capital as well as the proper use of credit mitigants.

So, imposing mandatory margin requirements on bilateral trades would be tantamount to insuring for the same risk twice.

We can understand – and in fact, we fully agree with – the mandatory exchange of VM among covered entities. Experience (good and bad) has demonstrated that the practice of frequently exchanging the unrealized mark-to-value fluctuations between two parties is very beneficial in terms of reducing counterparty risk. It helps avoid the build-up of large unrealized positions that could become destabilizing in periods of market stress. This is a widely adopted practice among practitioners in the OTC derivatives markets. Had this practice been followed by AIG and certain monolines in the US, counterparty risk would probably not have become such a big issue.

While the requirement for VM exchange alone would be more than enough to address counterparty risk concerns, the BCBS/IOSCO proposal goes a step further. In order to further reduce counterparty risk in the eventuality that one of the parties in a bilateral trade defaults, they call for IM to establish a buffer. The buffer – the IM – is meant to absorb any losses realized during the time (10 days) when the non-defaulting party is closing out or replacing the risk it had with the defaulting party. This innocuous step has huge unintended consequences.

In addition to being unnecessary (as this exposure is typically covered by other risk mitigants that the two parties typically agree among them), this arrangement is inefficient. That’s because BOTH parties are required to post IM – but only one defaults. It would also require all covered entities to create new set ups to meet these requirements (be they in the form of new operational processes, cash and collateral and custodian management needs, new agreements etc.). All of this implies higher costs for derivatives users as they will bear the increased cost of doing business, irrespective of whether they are covered entities or not.

Unfortunately, the detrimental effects of this proposal do not stop here. While one cannot argue with the intentions of the regulators to reduce counterparty risk, it seems that the potential implications of this proposal have been grossly underestimated. The combination of requiring the posting of an across-the board two-way IM – which has to be segregated and cannot be re-hypothecated – leads to some very large collateral requirements.

ISDA has performed some preliminary analysis to gauge the potential demand for collateral that this proposal could generate. If this were to be implemented on the existing portfolio of non-cleared OTC derivatives outstanding, incremental collateral demand could run as high as $15.7 trillion.

Now $15.7 trillion may sound like a very large number. It is! But for all practical purpose, any number above a couple of trillion would make the cost of meeting such requirements prohibitive – even if it is feasible at all to locate so much collateral. Collateral demand in such amounts is likely to cause irreparable damage both to the OTC derivatives market, but also to the general economy.

So, once again we have come full circle. Risk does not disappear. It just changes form. Regulators have initiated margin proposals to enhance systemic resiliency by reducing counterparty risk. But in the process of doing so, they are about to decrease systemic resiliency by introducing healthy amounts of liquidity risk (caused by the shortage of collateral) and economic risk (caused either by the shortage of liquidity and/or by all the economic risks that are likely to remain unhedged).

New Slang

Cross border guidance, extraterritoriality, and third country issues. Mutual recognition and substituted compliance.

In the OTC derivatives world, these terms have replaced old favorites like day count fractions, credit events and calculation periods as topics for discussion and debate.

Comments flooded into the CFTC from industry and regulator alike on the long-awaited CFTC guidance on the cross border application of its rules (as the Commission refers to them) or to third country issues related to extraterroriality (as Europe refers to them).   Regulators are struggling over the mutual recognition of another country’s regulatory regime, or a system of substituted compliance, where one country’s rules can take the place of another’s in order to achieve compliance.

All this back-and-forth is driven by the 2012 year-end deadline to comply with the G20 commitment on clearing, execution, reporting and capital for OTC derivatives. Where do the US and Europe stand in achieving those goals? What are the differences between approaches? And how significant are those differences?

To assist our membership in understanding both the similarities and the differences, we have worked with the Clifford Chance law firm to produce a comparison of rulemaking on critical issues in both the United States and Europe. This is version 2.0, as we produced an earlier version almost two years ago. And with the regulations still evolving, don’t be surprised if there is a version 3.0.

What the comparison shows is that there is significant commonality in the approaches to issues in the United States and Europe.

But there are also some important differences. Treatment of end-users, the notion of major swap participant in the United States and the so-called “push out” rule are among those differences.

There are also differences in the timing of certain rules, driven largely by the fact that trade execution and pre- and post-trade transparency in Europe are part of the revisions to the Markets in Financial Instruments Directive (MiFiD), which is still working its way through the European process. We are not likely to have clarity on those issues until late this year or some time into 2013.

The comparison has a helpful summary chart indicating which rules (clearing, reporting, margin, capital, registration) apply to which entities (dealers, other financial counterparties, non-financial counterparties). From there, a reader can drill down to all the details.

As with any language, there are several levels of comprehension. One can learn the words, then the grammar, but true understanding comes when you know the subtle nuances of a native speaker. Think of the comparison we have produced with Clifford Chance as your Rosetta Stone for being able to be bilingual in the new world of derivativese.

How Are We Doin’?

Former New York City Mayor Ed Koch was famous for asking New Yorkers “How am I doin’?” The response gave him a quick job rating from his constituents. Sometimes it was a cheer, sometimes a boo.

With the publication this week of a series of final rules from the CFTC, it might be timely to ask “How are we doin’?” This set of rules covers a range of issues, including confirmations, valuation, portfolio reconciliation, dispute resolution and compression. In short, it’s a laundry list of what ISDA and our members have been focusing on in recent years to deliver safe, efficient markets.

And we’re happy to report that, on balance, the final rules would seem to us to elicit more cheers than boos.

For example, one important issue involves an extension of the time period for compliance with a set of external business conduct rules. This extension was important for purely practical reasons as much remains to be done by market participants to amend their contracts to address these rules. The process of doing so began with the recent launch of the Dodd-Frank Protocol and ISDA Amend, a joint ISDA-Markit initiative that automates part of the required compliance. We already have over three dozen adhering parties and we expect that number to grow substantially over the next month or so. But even with the efficiencies provided by those processes, mid-October was looking like a stretch to get everyone—buy side, corporates, pension funds and others—on board. So the extension was much needed.

In other portions of the release, ISDA’s comment letters are cited as the basis for changes in the final rules. Our positions, of course, were not adopted across the board and some concerns remain, but many critical parts of the rules reflect a reasoned approach to achieving regulatory goals. For example, the CFTC decided not to apply the rules retrospectively, something we advocated. On disputes, the difference in valuations must exceed 10% before dispute mechanisms are triggered and reports of disputes to the regulators are required if the dispute exceeds $20,000,000. The time periods for resolving disputes have been extended although they are still shorter than we advocated or have been working toward in our ongoing collateral committee efforts.

Also, the release acknowledges the successful efforts undertaken with the OTC Derivatives Supervisors Group, led by the New York Fed, to address issues such as confirmation backlogs and portfolio reconciliation. In executing its legislative mandate, the CFTC must put its own stamp on these issues while building on the real progress made through ISDA’s and the industry’s efforts with the ODSG.

The CFTC also acknowledges in several instances the central role played by ISDA documentation, the global standard for documenting derivatives. That’s an important consideration, particularly as we proceed with many amendments to the documentation driven by the Dodd Frank Act. The CFTC does not explicitly endorse ISDA documentation because it points out parties can—and do—negotiate variations to those terms. We are, after all, dealing with privately negotiated bilateral contracts.

Finally, the rules indicate that the CFTC will not view failure to comply with documentation and confirmation requirements as a violation of the rules or the Dodd Frank Act so long as procedures are in place to comply and there is a good faith effort to follow those procedures. This is a practical approach, and it is encouraging that the CFTC is motivated to encourage compliance and appears not to be constructing traps for the unwary.

We and our members will continue to study these final rules to identify implementation challenges and concerns. We look forward to a constructive dialogue on these issues in order to foster safe and efficient markets.

And in the meantime, feel free to let us know how we’re doin’.

Liquidity Is King

While it is summertime, the livin’ is not (always) easy. The EU regulatory process continues unabated and with the publication of a first complete Compromise Text on MiFID 2/MiFIR earlier this summer, the journey to trading obligations and platforms in the EU has well and truly begun. The process will take another step forward with the ECON Committee vote in the European Parliament, scheduled (after a postponement) for late September.

One of the big questions that remains unanswered in the MiFID/MiFIR debate – and that explicitly needs to be addressed before its resolution – relates to liquidity.

There are two aspects to this issue. One has to do with the use of liquidity as a benchmark or trigger for determining whether a rule applies to a particular obligation. The second has to do with the impact of the rules on the liquidity of traded financial instruments.

First things first: On the subject of a liquidity trigger, at what point should a financial instrument or market be considered liquid enough to support particular regulatory obligations? Such obligations might include those related to mandatory central clearing of OTC derivatives; mandatory trading of derivatives on regulated venues; or pre- and post-trade public transparency. That question is at least in focus in the MiFIR debate. Much less attention is being paid to an equally important question: when does an instrument or market stop being liquid enough to support those obligations; and how do you suspend them?

This is not just an academic discussion. Various provisions in the MiFID/MiFIR proposals reference liquidity as a trigger for particular obligations (notably the trading obligation and pre-trade transparency requirements).

Moving now to the second issue, the impact of the proposed rules on liquidity: To what extent could additional regulatory obligations increase or impair the existing liquidity of a particular financial instrument or a market as a whole? To be fair, some policymakers show awareness and sensitivity to this issue.

In the continuing dialogue over the proposed rules (particularly over the trigger issue), it is important that policymakers consider the potential for liquidity to vary over time. To put it bluntly, there is no market where permanent liquidity can be guaranteed (or, by the same token, mandated). This might reflect changes in market conditions in general, or simply the nature of the individual product.

Changes in liquidity levels could be inherent to the product in question, with liquidity falling in the period after the conclusion of the contract. For example, an ‘off-the-run’ credit index contract is likely to be significantly less liquid than the ‘on-the-run’ equivalent. And, even for an on-the-run index, the five-year maturity will be liquid where, say, the four-year is not. Changes in liquidity levels could also reflect external factors, such as weakening in the supply of credit. For this reason, it is important that the market infrastructure is sufficiently flexible to accommodate any change in liquidity.

In addition, given the potential for liquidity to change, liquidity triggers should also typically be two-way, i.e. the trigger should not only define when a particular regulatory provision applies, but should also define when the provision ceases to apply. Ideally, it should be possible to suspend particular obligations immediately, to ensure that markets continue to function (albeit with less turnover) during times when liquidity is stressed.

It has long been our view that legislative reform should support liquidity in the interest of systemic resilience, should protect the funding requirements of corporates and sovereigns and should advance the principle of strong risk management. And to that end, we support linking obligations to liquidity in appropriate circumstances. However, liquidity triggers:

• Must consider the various factors that collectively constitute liquidity;
• Must be forward-looking;
• Must be two-way so that obligations can be disapplied when necessary.

There are many welcome and positive developments in the Compromise Text. However, where the European Securities and Markets Authority (ESMA) is given the task of determining or applying a liquidity trigger, then its mandate should be such as to allow it to consider all relevant factors.

derivatiViews: One Year On

We launched derivatiViews just about a year ago, and one need only look at the topics we have covered to get a sense of the issues we and the OTC derivatives industry have been facing. Let’s take the opportunity to reflect on some of those issues and also consider what lies ahead.

Of course, regulation and its implications have been a steady focus of derivatiViews. We have tried to be constructive in our commentary, recognizing the challenges that regulators face as they create a new regulatory regime. For instance, we acknowledged the notion under CFTC rules of the “legally separated, operationally comingled” approach to cleared margin segregation as a serious effort to balance a range of different views. Similarly, although we are still studying the details of the product definition rules, we recently noted the hurdles that the CFTC and the SEC had to clear to get to a final rule. The issues facing other regulators, particularly those in Asia, have been a periodic theme of our posts.

One development we wouldn’t have anticipated a year ago was that we would be in litigation against a regulator, specifically the CFTC. As we explained in December, this was not a step we took lightly, but we, together with our co-plaintiff, the Securities Industry and Capital Markets Association, believed that the way position limits had been considered in the rulemaking process, particularly the lack of consideration of the costs and benefits, cried out for scrutiny by the courts. As of this writing we are still awaiting word from the judge on the case. Regardless of the outcome on the case, we will remain engaged in the US, Europe and around the world in achieving a regulatory structure that works for everyone affected by derivatives. Which is pretty much everyone.

The continuing financial crisis in Europe provided ample opportunity for us to comment. We used this platform to further understanding about the role of CDS, the need to understand the legal terms and the importance of collateral in helping to reduce risk in these trades. When, in the end, the EMEA Determinations Committee decided that the forced restructuring of Greek debt constituted a credit event, we reflected on the many lessons learned and highlighted steps that we would take in light of that experience.

Halfway through this year it is also an opportunity to reflect on progress on our resolutions for the new year. We have remained actively engaged in capitals around the world on the issues affecting our industry. We are also in contact with global bodies, such as the Basel Committee, the Financial Stability Board and IOSCO, which play an increasingly important role in regulatory for this global business. We commented on the recent progress report by the FSB on progress toward the G20 commitments, which acknowledged the progress that has been made, particularly on clearing, and the significant work that remains to be done. It also acknowledged that market liquidity should be a consideration as countries consider mandates for execution, which had been the subject of a derivatiViews post from late last year.

We also remain focused on the steps necessary to increase safety and efficiency of our markets, including the many aspects of clearing, from documentation to margin to capital. In just the past few months we have remarked on the demands on collateral given the reliance on it in cleared and uncleared trades, the connectivity between the cleared and the bilateral world and the challenges of achieving meaningful consistency in data and reporting. Each of these issues has serious implications for the safety and efficiency of our markets.

We will continue to pursue our stated goals for the remainder of this year and beyond. And we will be prepared to address new developments that will no doubt drive our agenda. Whatever develops, please continue to check back here at derivatiViews for our take.