Weekly Roundup | 10th August 2014
Kenneth Bentsen (CEO SIFMA) calls for regulators to mandate global LEI usage
Regulators around the globe should mandate the use of global legal entity identifiers (LEIs), writes Kenneth Bentsen, Jr., president and CEO of the Securities Industry Financial Markets Association (SIFMA) and CEO of the Global Financial Markets Association (GFMA). LEIs, which are standardized codes for legal entities, have been created in the wake of the financial crisis. Depending on their size, many global businesses may have hundreds or thousands of legal entities, and an often-cited justification for them is that when Lehman Brothers went bankrupt it was difficult to identify which of Lehman’s thousands of legal entities firms had exposure to. The GFMA, which represents financial trade groups around the world, and which Bentsen heads, has long argued that the only way for Global LEIs to be effective is for regulators around the world to mandate their use.
DTCC anticipates legislators will end cross-border swaps data deadlock
A bill that would strike out a controversial clause that prevents foreign regulators from accessing information in U.S. swaps data repositories (SDRs) could be passed within months, the Depository Trust Clearing Corporation anticipates. The bill is awaiting consideration from the Senate once senators return from summer recess. The controversial clause requires foreign regulators to indemnify U.S. SDRs before accessing their data but that is a risk that no foreign regulator is willing to take. As a result, no foreign regulator has been able to directly access swaps data held in U.S. SDRs. Regulators say the issues is preventing them from getting a comprehensive picture of global dealers’ over-the-counter derivatives books.
CME Clearing Europe wins EMIR approval to be CCP
CME Group’s European clearing house, CME Clearing Europe has received authorization to serve as a central counterparty clearing house (CCP) under the Europe Market Infrastructure Regulation (EMIR). The authorization covers all the OTC derivatives and futures products that CME Clearing Europe currently clears. CME Clearing Europe says it is the first CCP globally to offer the full segregation client protection model with enhanced protection for bankruptcy, which expands client asset protection beyond EMIR requirements.
Sapient Global Markets supports EMIR collateral and valuation reporting
Sapient Global Markets has added collateral and valuation data and reporting to its systems to help clients meet an Aug. 12 European Market Infrastructure Regulation (EMIR) deadline. The mid-August EMIR deadline requires firms to report collateral and valuation information on over-the-counter (OTC) and exchange-traded derivatives on a portfolio level. Sapient made the enhancements to its Compliance Management and Reporting System (CMRS) to support the new requirements and to help clients better integrate disparate valuation and collateral sources.
IOSCO launches information repository for central clearing requirements
The International Organization of Securities Commissions has launched an information repository that both regulators and market participants can use to access information on clearing requirements of different jurisdictions. The repository, which will be updated quarterly, contains central clearing requirements, and exemption from them, on a product-by-product level. The repository was first launched to IOSCO members only in February. Now the IOSCO has decided that it has gathered enough information and gained enough experience to open the repository to the public. IOSCO says it expects the repository will help regulators with rule-making and help market participants with complying with OTC derivative market regulations.
ProShares issues the first ETFs backed by credit default swaps
ProShares has issued the first ETFs ever to be backed by credit default swaps. The ETFs which trade on the BATS exchange, provide exposure to high-yield debt issuers. Credit default swaps are often used as a way to manage or hedge credit risk. The new ETFs could offset risk for high-yield bond investors. The ETFs are launching at a time when investors have been pulling out of high-yield junk bonds. For the week ended Aug. 6, investors pulled $7.1 billion out of U.S. based high-yield bond funds, the biggest outflow on record, according to data from Thomson Reuters’ Lipper service.
Uptake of FX Options and NDFs on SEFs is modest
While trading of interest rate products has been promising on the Swaps Execution Facilities (SEFs), trading of FX options and NDFs has been more modest. One factor may be the different regulations between the US and other countries. Although FX Options and NDFs are to be traded on SEFs for U.S. customers, other countries have not yet implemented comparable rules. As FX trades are generally international, firms have reportedly diverted trades to outside the US to avoid the regulations. Meanwhile the Bank of England’s semi-annual FX Survey showed that the world’s largest FX center saw trading volumes increase for FX options and NDFs. Average daily volume in NDFs for the six months up to April increased to $55 billion from $43 billion over the prior six months ending October 2013, and FX options saw average daily trading reach $129 billion in April 2014 from $113 billion in April 2013.