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June 10, 2013

The week that was (aka Dazzling Derivatives; issue of 10.6.2013)

Dear all,

Selected top stories of last week

ESMA EMIR FAQs ESMA has updated the Q&As on EMIR – with a number of new questions answered and questions from March partially updated (http://bit.ly/11tUxji)
Phase 2 of Clearing in the US June 10th  marks phase 2 of central clearing in the US – category 2 firms are now required to clear and still half of global market participants seem to be not ready (http://bit.ly/11qesOU).
TriOptima working with DTCC SDR TriOptima will support data verification and portfolio reconciliation of DTCC’s trade repository data by being allowed access to said data (http://bit.ly/16MbxJj).
SEF Rules Now Published The SEF rules have now been published in the Federal Register and they will thus become effective August 5, 2013 (http://bit.ly/18m1dZ2). 
LEI Prefixes The Regulatory Oversight Committee of the Legal Entity Identifier System (LEIROC) has published a note on the allocation of pre-LOU prefixes for pre-LEI issuance (http://bit.ly/1bmYZow). 
CFTC Cross-border exemption Will the CFTC now extend the cross-border exemptive order or not beyond July 12th? Commentary here (http://reut.rs/18RqOWI), here (http://1.usa.gov/14jmBKf), here (http://bit.ly/104oxHb) and here (http://1.usa.gov/15EvTzH).
Pre-trade credit checks Tradeweb has supported the first electronic indicative pre-trade credit check between a buy-side client and a futures commission merchant (FCM) for an over-the-counter derivatives transaction (http://bit.ly/ZEbbiK).
ISDA Standard CSA ISDA has published its 2013 Standard Credit Support Annex (SCSA) under US and UK law (http://bit.ly/16W6VAq) – will we now see a flurry of CSA negotiations?
Impact on Futures trading The world of futures trading is hugely affected by the new OTC clearing regime as can be seen here (http://bit.ly/11yFitT) and here (http://bit.ly/1b9U4ah).
Underpaid regulators William Wright, eFinancialNews, makes an interesting case on the fact that staff at regulatory bodies are underpaid compared to the people they have to regulate and therefore such staff might not be up to the task of regulating and policing the financial services industry (http://bit.ly/12Avnpw). And he also suggests some remedies
VaR & SPAN And if you ever wanted to understand the difference between Historic VaR and SPAN, here's a good summary: http://bit.ly/18ZtYI7.

THE ARTICLES

(1) REGULATION

(1.1) EUROPE

ESMA Updates EMIR Q&As On 6 June 2013, the European Securities and Markets Authority (ESMA) published an updated set of questions and answers (Q&As) on EMIR implementation, a follow-up to the original version published on 20 March 2013. http://regulatoryreform.wordpress.com/2013/06/07/esma-updates-emir-qas/ ESMA publishes revised EMIR Q&A – questions remain Amsterdam – 7 June 2013. The European Securities and Markets Authority (ESMA) yesterday published a revised version of the Q&A document on EMIR. Many market participants are eagerly waiting for clarification of a range of questions they are facing in the implementation process. http://www.doubleeffect.com/nl/nieuws/ TABB Says EMIR Requirement For Improved Trade Reporting Is Leading Move To Automated Workflows Change is underway in the European OTC equity derivatives markets. Greater transparency is being created from the necessity of improved clearing, collateral and trade reporting driven by EMIR Regulation 648/2012, which became effective March 2013. This requirement for improved trade reporting will kick start radical change in systems and technology. http://www.iss-mag.com/news/tabb-says-emir-requirement-for-improved-trade-r Tackling European trade reporting requirements Requirements for trade reporting require new workflows for traders in the energy and financial markets, finds Dan Barnes. http://www.fow.com/Article/3215088/Tackling-European-trade-reporting-requirements.html ESMA Publishes Guidelines for CCP Colleges On 5 June 2013, the European Securities and Markets Authority (“ESMA”) published a report entitled “Guidelines and Recommendations regarding written agreements between members of CCP colleges”. http://regulatoryreform.wordpress.com/2013/06/06/esma-publishes-guidelines-for-ccp-colleges/ Bail-in and the Central Clearing of Derivatives Pursuant to Article 38(3) of the original EU Commission proposal for a EU Directive establishing a framework for the recovery and resolution of credit institutions and investment firms (the “RRD”), resolution authorities may exclude derivatives transactions from the scope of the Bail-in tool http://recoveryandresolutionplans.wordpress.com/2013/06/06/bail-in-and-the-central-clearing-of-derivatives/

(1.2) US

DerivOne Update: Summary of the CFTC's Swap Block Rule Attached is a detailed summary of the CFTC’s swap block rule, which was finalized May 16 and published in the Federal Register on May 31. It will become effective July 30. http://oreo.itracmediav4.com/itracEmail/view?uuid=8e530594-f70e-4e64-ae06-261457e14bb6 SEF Rules Entered Into Federal Register, Become Effective August 5 Today, the CFTC entered the final rules for swap execution facilities into the Federal Register. They will become effective August 5, 2013. http://www.derivalert.org/blog/bid/92768/SEF-Rules-Entered-Into-Federal-Register-Become-Effective-August-5 Clarity on SEF Rules Paves Way for Preparation for the New World of Execution State Street's Tomas Zikas talks to DerivSource about the implications of the recently announced Swap Execution Facility (SEF) rules and how the market can prepare for implementation in the next several months. http://www.derivsource.com/articles/clarity-sef-rules-paves-way-preparation-new-world-execution CFTC’s Division of Clearing and Risk Issues an Advisory Pertaining to the Effective Date of the Clearing Exemption for Swaps Between Certain Affiliated Entities Washington, DC — The Division of Clearing and Risk (DCR) of the Commodity Futures Trading Commission (CFTC) today issued an Advisory notifying market participants that the effective date of the final rule adopting the “Clearing Exemption for Swaps http://www.cftc.gov/PressRoom/PressReleases/pr6603-13 CFTC’s Division of Clearing and Risk Issues Time-Limited No-Action Relief from Required Clearing for Swaps Entered into by Certain Cooperatives Washington, DC — The Division of Clearing and Risk (DCR) of the Commodity Futures Trading Commission (Commission) today announced the issuance of a time-limited, no-action letter granting relief from required clearing under section 2(h)(1)(A) of the Commodity Exchange Act and part 50 of the Commission’s regulations for certain swaps entered into by qualifying cooperatives. http://www.cftc.gov/PressRoom/PressReleases/pr6604-13 OTC Derivatives Clearing Summit: SEC, Fed promise reform progress Supervisors respond to buy-side fears of multiple regulatory masters http://www.risk.net/risk-magazine/news/2273023/otc-derivatives-clearing-summit-sec-fed-promise-reform-progress OTC Derivatives Clearing Summit: Bank examiners will push dealers away from bespoke trades, says Fed Supervisors should ask dealers to prove they are favouring standardised products, says Fed official http://www.risk.net/risk-magazine/news/2273051/otc-derivatives-clearing-summit-bank-examiners-will-push-dealers-away-from-bespoke-trades-says-fed U.S. swaps regulator urges closing 'tropical island' loophole (Reuters) – The top U.S. derivatives regulator urged closing a legal loophole for offshore hedge funds, warning it threatened to undo a deep overhaul of Wall Street after the credit meltdown. http://uk.reuters.com/article/2013/06/06/derivatives-regulation-idUKL1N0EI0UI20130606 Chairman Gary Gensler's Keynote Address on the Cross-border Application of Swaps Market Reform at Sandler O'Neill Conference http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-141 Statement by Commissioner Scott D. O’Malia on Ensuring a Backup Plan on Cross-Border Guidance to Give Markets Certainty The Commission’s exemptive relief from the cross-border application of its Dodd-Frank rules expires on July 12.1 As that date nears, the Commission has only been given one path forward: finalize the cross-border guidance it proposed last July, or else leave the market without any clarity on the extraterritorial application of Commission rules following the expiration of the exemptive relief. http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement060613 Trade reporting rules prove a headache for energy firms A last-minute no-action relief letter from the US Commodity Futures Trading Commission in April gave energy firms a few extra months to prepare for Dodd-Frank reporting requirements, but participants say a huge number of challenges still need to be addressed. http://www.risk.net/energy-risk/feature/2271264/trade-reporting-rules-prove-a-headache-for-energy-firms US public utilities take CFTC fight to Congress Frustrated by inaction at the CFTC, public utilities champion new law on Dodd-Frank special entities threshold http://www.risk.net/energy-risk/news/2273061/us-public-utilities-take-cftc-fight-to-congress OTC Derivatives Clearing Summit: Some non-US dealers leaving buy-side trades unreported Citadel and Fortress have found some foreign banks unwilling to accept Dodd-Frank reporting rules, conference hears http://www.risk.net/risk-magazine/news/2273068/otc-derivatives-clearing-summit-some-nonus-dealers-leaving-buyside-trades-unreported Asian firms not likely to be compliant with cross-border Dodd-Frank on July 12 Many financial institutions in Asia would not be in a position to comply with Dodd-Frank cross-border applications should the CFTC’s exemptive order expire on schedule on July 12 http://www.risk.net/asia-risk/news/2273408/asian-firms-not-likely-to-be-compliant-with-crossborder-doddfrank-on-july-12

(1.3) INTERNATIONAL & MIXED

ISDA Publishes 2013 Standard Credit Support Annex (SCSA) NEW YORK, June 7, 2013 – The International Swaps and Derivatives Association, Inc. (ISDA), today announced the publication of the 2013 Standard Credit Support Annex (SCSA). http://www2.isda.org/attachment/NTYyNQ==/SCSA%20Publication%20Final%202013-06-07.pdf Lack of CSAs restricts forex hedging options for Australian institutions Returns for hedging via long-term cross-currency swaps are attractive, but few are able to do so because of the lack of credit support annexes in place http://www.risk.net/asia-risk/news/2272127/lack-of-csas-restricts-forex-hedging-options-for-australian-institutions Global Legal Entity Identifier System: Regulatory Oversight Committee publishes allocation of pre-LOU prefixes for pre-LEI issuance The Regulatory Oversight Committee of the Legal Entity Identifier System (LEIROC) has published a note on the allocation of pre-LOU prefixes for pre-LEI issuance http://www.leiroc.org/publications/gls/lou_20130318.pdf SDR/TR | Standardi (Z or S) ation StandardiZation, StandardiSation.  Why can’t we all just agree??? http://blog.broadpeakpartners.com/sdrtr-standardi-z-or-s-ation/ It is time to stop whining about regulation Last month, Financial News invited a group of chief investment officers and senior executives to a roundtable event to analyse the results of our inaugural Investment Barometer Survey. Here is the second of a three-part edited transcript of the discussion. http://www.efinancialnews.com/story/2013-06-10/it-is-time-to-stop-whining-about-regulation Counting the real cost of regulation Nobody likes more regulators or more regulation. This antipathy towards watchdogs was neatly captured by Howard Davies, then chairman of the Financial Services Authority, when, shortly after the organisation’s formal launch in 2001, he wrote: “The celebrations in the City of London were muted. If there were parties, we were not invited.” http://www.efinancialnews.com/story/2013-06-10/counting-the-real-cost-of-financial-regulation Half a job MiFID, the mother of all European financial regulation, rumbles on and on. http://regulation.fidessa.com/2013/06/07/half-a-job/ Is the Buy Side Getting Screwed in the Dark Shadows? Dark pools are under a regulatory and legislative assault, in Europe, Canada, and the US. http://streetwiseprofessor.com/?p=7321

(2) TECHNOLOGY

TriOptima Will Assist In Verifying And Reconciling OTC Derivatives Data Submitted To DTCC TriOptima  will support data verification and portfolio reconciliation of DTCC’s trade repository data as requested by triResolve clients’ for their OTC derivatives portfolios.  TriOptima will be the first portfolio reconciliation provider to receive directly DTCC repository data for this purpose. http://www.iss-mag.com/trade-support/trioptima-will-assist-in-verifying-and-reconcil http://www.trioptima.com/uploading_images/pdf/2013-06-06%20TriOptima%20DTCC%20Cooperation.pdf

(3) INFRASTRUCTURE

SwapClear US Trade Volumes It’s a bit early to make anything of the figures, but if you like to watch notional volumes check out this page http://www.lch.co.uk/swaps/volumes/daily_volumes_us.asp The end of the waterfall: Industry faces up to CCP recovery and resolution Policy-makers say they will not bail out a stricken clearing house, which means the industry needs explicit recovery and resolution plans. It also means member firms will get a better picture of exactly how much risk they face. http://www.risk.net/risk-magazine/feature/2270790/the-end-of-the-waterfall-industry-faces-up-to-ccp-recovery-and-resolution Banks tout alternative to calculate CCP default fund capital charge Dealers push for a more risk-sensitive model, but regulators may opt to incorporate a new non-internal modelled approach into the existing hypothetical capital method http://www.risk.net/risk-magazine/news/2273041/banks-tout-alternative-to-calculate-ccp-default-fund-capital-charge (4) BUSINESS & OTHER STORIES Isda set to offer new CDS insurance policy The International Swaps and Derivatives Association is stepping up efforts to toughen the rules covering credit default swaps. http://www.efinancialnews.com/story/2013-06-06/isda-to-offer-cds-insurance-policy OIS Discounting: Facing the New Level of Complexity With many of the world’s financial institutions in the process of migrating to new market standards, questions remain as to the potential impact on existing portfolios, as well as how to effectively manage instruments with longer-dated maturities when spreads in LIBOR v. OIS rates begin to diverge. http://blog.numerix.com/public/2012/04/ois-discounting-facing-the-new-level-of-complexity.html Derivatives players prepare for Libor shake-up Players in the derivatives market are preparing to forge a raft of individual agreements this week to head off disputes over valuation, contracts and settlement as a suite of Libor benchmarks disappear. http://www.efinancialnews.com/story/2013-06-03/derivatives-libor-disputes LEVERAGING LSOC OPPORTUNITIES New rules have recently come into effect that have substantively changed the customer collateral asset protections relevant to central clearing. http://blogs.sungard.com/ten/capital-markets/trading/leveraging-lsoc-opportunities/ Tradeweb Completes First Electronic Buy-Side Pre-Trade Credit Check for Swaps Trading NEW YORK, NY (June 6, 2013) – Tradeweb Markets, the leading global provider of fixed income and derivatives marketplaces, supported the first electronic indicative pre-trade credit check between a buy-side client and a futures commission merchant (FCM) for an over-the-counter derivatives transaction. http://www.tradeweb.com/News/News-Releases/Tradeweb-Completes-First-Electronic-Buy-Side-Pre-Trade-Credit-Check-for-Swaps-Trading/ OTC earthquake shaking up futures clearing Clearing rules for over-the-counter derivatives are prompting buy-side firms to revisit long-standing futures clearing relationships, with some customers choosing to house both sets of business in the same place. Big swaps players say this hands them the advantage – but their futures rivals are not so sure. http://www.risk.net/risk-magazine/feature/2271084/otc-earthquake-shaking-up-futures-clearing OTC Derivatives Clearing Summit: Capital burdens could weigh on swap futures Lower margin levels for swap futures could drive up risk-weighted assets for dealers, and erode product's advantage, panellists argue http://www.risk.net/risk-magazine/news/2273063/otc-derivatives-clearing-summit-capital-burdens-could-weigh-on-swap-futures OTC Derivatives Clearing Summit: Clearing incentives "are not there" – Goldman's Frankel Regulators want capital and margin rules to encourage central clearing, but analysis suggests costs may currently be higher in the cleared world http://www.risk.net/risk-magazine/news/2273362/otc-derivatives-clearing-summit-clearing-incentives-are-not-there-goldmans-frankel


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