The week that was – 25.03.2013
Last week's highlights include… (see below for details and links on each story)
- BaFin publishes relevant notification forms for NFCs
- In Asia traction in terms of the G20 commitment compliance can be seen, e.g. JSCC announcing to start client clearing in a year's time and MAS warning already on market fragmentation
- “The Commission now receives data on thousands of swaps each day. So far, however, none of our computer programs load this data without crashing,” CFTC Commissioner Scott O’Malia; they would not even have caught the London Whale
- Markit tested the IPO waters and is said to be valued at roughly 4 billion GBP – always good to be a dominant market player in a specific area…
- Russia does not seem the best place to be when dealing in derivatives
- The SEF rules the CFTC is supposed to finalise are still outstanding… a never-ending story – maybe, just maybe, OTF's will be there earlier :)
- Craig Pirrong has a few choice word to say to Gary Gensler's way of dealing with criticism of his beloved Frankendodd reforms
- The CFTC has reminded participants in the US swaps market that April 10th is the final date when every participant needs to report trades and that obtaining a CICI is a pre-requisite
- And – are those trillions of notional outstanding really reflecting the risk in the OTC markets correctly?
- EuroCCP – part of US group the Depository Trust & Clearing Corporation – and the European Multilateral Clearing Facility, majority-owned by Dutch bank ABN Amro have merged
- BNY Mellon – Regulatory Change in Securities Lending: An Update for Clients BNY_Reg changes in securities lending-0213
- Deutsche Bank – Derivatives Update – March 20, 2013 DB_Derivatives Update March 20 2013
- CRD IV_CRR – Frequently Asked Questions (MEMO-13-272_EN) CRD IV_CRR – Frequently Asked Questions (MEMO-13-272_EN)
EMIR: BaFin publishes notification forms for non-financial counterparties The Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) (BaFin) has published the notification forms for non-financial counterparties exceeding or no longer exceeding the clearing threshold under the regulation on over the counter derivatives, central counterparties and trade repositories (EMIR). A non-financial counterparty that enters into positions in OTC derivatives contracts that exceed the clearing thresholds specified under Article 11 of Regulation (EU) No 149/2013 must notify its competent authority under Article 10(1) of EMIR. Non-financial counterparties are required to notify BaFin that they have breached, or no longer exceed, the clearing threshold from 15 March 2013. http://www.bafin.de/DE/Aufsicht/BoersenMaerkte/EMIR/Mitteilungen/mitteilungen_node.html JSCC to start client clearing by March 2014 Japan’s over-the-counter derivatives clearing house will soon allow member banks to offer client clearing and it also plans to merge with another domestic clearing house, according to a senior official. http://www.risk.net/asia-risk/news/2255659/jscc-to-start-client-clearing-by-march-2014 MAS warns on fragmented clearing and reporting Asian financial markets have made progress in setting up CCPs and trade repositories, but greater harmonisation is needed across borders, Singaporean regulator warns http://www.risk.net/asia-risk/news/2255302/mas-warns-on-fragmented-clearing-and-reporting ASIC consults on trade repository regime ASIC today proposed draft rules and regulatory guidance to establish a trade repository regime – the next step in implementing Australia’s international commitments regarding over-the-counter (OTC) derivatives such as credit default swaps. http://www.secfinmonitor.com/sfm/asic-consults-on-trade-repository-regime/ The implications of Emir and Dodd-Frank for Asia’s CCPs Prescriptions within Emir and Dodd-Frank over the use of third-country clearing houses could drive European and US players out of Asia derivative markets – with a potentially negative impact on liquidity http://www.risk.net/asia-risk/opinion/2256003/the-implications-of-emir-and-doddfrank-for-asia-s-ccps BNY Mellon releases regulatory update on securities lending I have to admit; I really like white papers. They are relatively short, to the point, and highlight all these issues someone should focus on. https://theotcspace.com/2013/03/19/bny-mellon-releases-regulatory-update-on-securities-lending-2/ CFTC drowning in new data, O’Malia says | Reuters You can’t make it up – be careful what you wish for. https://theotcspace.com/2013/03/19/cftc-drowning-in-new-data-omalia-says-reuters/ Dodd-Frank Swap Data Fails to Catch JPMorgan Whale, O’Malia Says Dodd-Frank Act derivatives rules are failing to give regulators a full picture of the swaps market and wouldn’t help them detect a loss similar to JPMorgan Chase & Co. (JPM)’s London Whale trades, according to Commodity Futures Trading Commission member Scott O’Malia. http://www.bloomberg.com/news/2013-03-19/dodd-frank-swap-data-fails-to-catch-jpmorgan-whale-o-malia-says.html CFTC’s Implementation of Dodd-Frank — Grading Agency Transparency Keynote Address by Commissioner Scott D. O’Malia, SIFMA Compliance and Legal Society Annual Seminar http://www.cftc.gov/PressRoom/SpeechesTestimony/opaomalia-22 In the papers: Markit set for £4 billion market list Markit set for £4 billion market list after 13 years of rapid growth: Financial data provider Markit was testing the waters and talking to advisers about a float that would value the firm at above £4 billion, according to reports. https://theotcspace.com/2013/03/19/in-the-papers-markit-set-for-4-billion-market-list/ ESMA Publishes Draft RTS on CCP Colleges and guidelines on CCP Interoperability On 15 March 2012, the European Securities and Markets Authority (“ESMA”) published two documents relating to EMIR. http://regulatoryreform.wordpress.com/2013/03/19/esma-publishes-draft-rts-on-ccp-colleges-and-guidelines-on-ccp-interoperability/ UniCredit hit by ‘dangerous’ ruling in Russian swap dispute Court sets "dangerous precedent" in allowing local corporate to walk away from swap without compensating UniCredit http://www.risk.net/risk-magazine/news/2255216/unicredit-hit-by-dangerous-ruling-in-russian-swap-dispute Home Court Advantage, and the Further Miracles of Judo
SWP: "Just because I find the expropriation of Russian deposits in Cyprus wrong doesn’t mean that I’ve gone soft on Russia. To the contrary, my criticism of Russia and my criticism of the Cypriot confiscation grow from the same roots: a belief in the rule of law, and a deep dislike for the natural state."
http://streetwiseprofessor.com/?p=7138 Securitisation touted as answer to '€4 trillion' funding gap Securitisation industry group claims Europe faces big financing shortfall – and pushes securitisation as the answer http://www.risk.net/risk-magazine/news/2255323/securitisation-touted-as-answer-to-eur4-trillion-funding-gap Ice blames SEC as it drops single-name CDS clearing plans Firms that trade index and single-name CDSs will see margin requirements increase http://www.risk.net/risk-magazine/news/2255319/ice-blames-sec-as-it-drops-singlename-cds-clearing-plans Whoops! They Did It Again!, or, Put some ICE on That
SWP: "The clearing and reporting requirements of Frankendodd have barely gone into effect, and the unintended consequences are already beginning to pile up. Who coulda seen that coming, eh?"
http://streetwiseprofessor.com/?p=7132 Risk Annual Summit: Basel ‘caved in’ on LCR, says German regulator Bafin liquidity expert tells conference that national concerns and industry pressure caused LCR rewrite http://www.risk.net/risk-magazine/news/2256263/risk-annual-summit-basel-caved-in-on-lcr-says-german-regulator Futures Replacing OTC Derivatives: Will It Work This Time? With the OTC derivatives reform's clearing obligation finally arriving in the US and Europe, there is one question on eveyone's mind: Do interest rate swap futures have the potential to replace interest rate swaps as the tool of choice for generic risk transfer? http://www.tabbforum.com/opinions/futures-replacing-otc-derivatives-will-it-work-this-time Credit index futures ahoy Continuing the OTC derivatives futurisation trend, ICE announced this week that it will introduce credit index futures in May http://blog.rivast.com/?p=7029 Finadium report: Futurization of the Swaps Market Finadium has release an analysis on the futurization of interest rate swaps. This important market shift has implications for risk, collateral management and portfolio margining. http://www.secfinmonitor.com/sfm/finadium-report-futurization-of-the-swaps-market/ CFTC's O'Malia: No progress on Sef rules in past two weeks Mid-April next window for vote, but no reason for optimism, says CFTC commissioner http://www.risk.net/risk-magazine/news/2254967/cftcs-omalia-no-progress-on-sef-rules-in-past-two-weeks CFTC’s Division of Clearing and Risk Issues Limited No-Action Relief from Required Clearing for Swaps Resulting from Multilateral Compression Exercises Washington, DC — The Commission’s Division of Clearing and Risk (Division) today issued a no-action letter that provides relief from required clearing for a limited set of swaps that are generated as part of a multilateral portfolio compression exercise. http://www.cftc.gov/PressRoom/PressReleases/pr6536-13 Gary Knows Best: Not Good Enough, Even for Government Work.
SWP "Sorry about the silence, folks. I was in Geneva doing my annual teaching in the University of Geneva’s Masters program in International Trading, Commodity Finance, and Shipping. It is a very unique program, and a joy to teach in. I also spoke at the annual Trading Forum sponsored by the Geneva Trading and Shipping Association (which also sponsors the Masters program). I spoke about Frankendodd, which is somewhat ironic given that Mary Shelley wrote Frankenstein on the shores of Lac Leman a few miles from Geneva."
http://streetwiseprofessor.com/?p=7122 BBA Rides to the Rescue over EMIR Counterparty Classifications On 19 March 2013, the British Bankers’ Association (BBA) published a press release regarding the development of a methodology for the consistent classification of counterparties as either financial counterparties (FCs) or non-financial counterparties (NFCs) under EMIR. http://regulatoryreform.wordpress.com/2013/03/20/bba-rides-to-the-rescue-over-emir-counterparty-classifications/ Derivatives rules could force schemes to abandon hedging strategies – NAPF International rules designed to bring transparency to the opaque derivatives market could backfire by imposing heavy costs on pension funds and force them to abandon hedging strategies, the industry’s trade body warns. http://www.professionalpensions.com/professional-pensions/news/2255552/derivatives-rules-could-force-schemes-to-abandon-hedging-strategies-napf Will there be demand for collateral transformation trades from insurance companies? The transition to cleared swaps has generated a lot of analysis on collateral shortages. If an investor doesn’t have the right kind of collateral – say they have corporates but need Treasuries – that creates a need for collateral transformation. http://www.secfinmonitor.com/sfm/will-there-be-demand-for-collateral-transformation-trades/ Unblocking the flow of collateral Global custodians have a big job on their hands. Regulations are forcing most over-the-counter derivatives trades to be centrally cleared through a central counterparty while liquidity requirements under Basel III will leave banks having to hold more higher-quality assets on their books to withstand financial shocks. http://www.efinancialnews.com/story/2013-03-25/unblocking-the-flow-of-collateral-custody-houses CFTC Advisory: Deadline for CICIs and Swap Data Reporting Approaches The CFTC has issued an advisory reminding market participants that the final default date for swap data reporting under all final CFTC swap data reporting rules is April 10, 2013, and that all parties to swaps for which data must be reported must obtain a CICI by that date. http://uslf.practicallaw.com/7-525-2918 Moving on from LIBOR | SwapClear Settlement Prices | Ben Larah – Sapient Earlier this week, LCH.Clearnet SwapClear started to publish daily settlement rates for key interbank/OIS swap rates in seventeen different currencies. https://theotcspace.com/2013/03/21/moving-on-from-libor-swapclear-settlement-prices-ben-larah-sapient/ Looking at Derivatives Notional: It makes for good eye-candy but not much else A post on zerohedge “US Deposits In Perspective: $25 Billion In Insurance, $9,283 Billion In Deposits; $297,514 Billion In Derivatives” caught our attention when it connected the dots between FDIC insurance, bank deposits, and the notional of derivatives held by U.S. banks (as published by the OCC). That was a bridge too far. http://www.secfinmonitor.com/sfm/looking-at-derivatives-notional-it-makes-for-good-eye-candy-but-not-much-else/ How Big is OTC Really? What do the hundreds of trillions mean and how can we compare this with other markets? https://theotcspace.com/2013/03/22/how-big-is-otc-really/ How big is OTC? Jon, posting at the OTC space, does a nice job of setting out the size of various markets. In particular he uses gross market value rather than notional for OTCs, which is a (much) more useful measure. The results are interesting: http://blog.rivast.com/?p=7032 Risk Annual Summit: CVA exemptions could backfire, panel warns Hedges will attract capital instead of providing capital relief, argues Citi exec http://www.risk.net/risk-magazine/news/2256595/risk-annual-summit-cva-exemptions-could-backfire-panel-warns Broader US person definition could cause clearing avalanche, participants warn A large number of offshore funds could be classified as US persons once a CFTC exemption expires in July, subjecting them to Dodd-Frank transaction-level rules http://www.risk.net/risk-magazine/news/2256600/broader-us-person-definition-could-cause-clearing-avalanche-participants-warn Extraterritoriality: US person definition doubt The Dodd-Frank Act requires any trade involving a US person to meet strict new regulatory requirements. The first mandatory clearing requirements are now in force – but the definition of US person is still not finalised, creating havoc for firms trying to prepare for the rules. Nick Sawyer reports http://www.risk.net/risk-magazine/feature/2255184/extraterritoriality-us-person-definition-doubt Clearstream and Bloomberg partner on tri-party repo processing Clearstream today announced a collaboration with Bloomberg to provide clients an automated order routing service that delivers an additional means of accessing triparty repurchase agreements (repo) transactions. http://www.secfinmonitor.com/sfm/clearstream-and-bloomberg-partner-on-tri-party-repo-processing/ ESMA backs swaps reporting choice | Pre & post trade reporting | thetradenews.com ESMA moves to avoid CME rule 1001 in Europe, and will give the reporting party precedence in decided where to report their derivatives business. https://theotcspace.com/2013/03/22/esma-backs-swaps-reporting-choice-pre-post-trade-reporting-thetradenews-com/ Wall Street Wins Under Swap-Rule Changes Moving in House U.S. House lawmakers advanced legislation that would ease Dodd-Frank Act derivatives rules and give banks greater ability to trade swaps overseas. http://www.bloomberg.com/news/2013-03-19/wall-street-may-win-swap-rule-reprieve-in-u-s-house-legislation.html EU Commission Publishes FAQ on CRD IV On 21 March 2013, the EU Commission published an FAQ on the CRD IV, the EU implementation of Basel III. Have a read, it’s a great introduction. http://europa.eu/rapid/press-release_MEMO-13-272_en.htm?locale=en DTCC confident it can overcome obstacles in clearing revolution Companies can often run aground when trying to export successful business models. A failure to cater to local tastes and customs, or to adapt to unfamiliar regulatory regimes, can derail even the best-laid plans. http://www.efinancialnews.com/story/2013-03-25/dtcc-confident-it-can-overcome-obstacles-in-clearing-revolution Europe’s clearers reach a crunch point If at first you don’t succeed… the notion that persistence can pay off has held true for two of Europe’s largest clearing houses. EuroCCP – part of US group the Depository Trust & Clearing Corporation – and the European Multilateral Clearing Facility, majority-owned by Dutch bank ABN Amro. http://www.efinancialnews.com/story/2013-03-25/clearers-in-europe-reach-crunch-point Regulator warns industry to get implementation of Dodd-Frank right Implementation of Dodd-Frank Act raises op risk concerns, conference hears http://www.risk.net/operational-risk-and-regulation/news/2256740/oprisk-north-america-regulator-warns-industry-to-get-implementation-of-doddfrank-right