THE ARTICLES

(1) REGULATION

(1.1) EUROPE

25 New Clarifications on EMIR from ESMA (FAQ Update) ESMA has updated their EMIR FAQs as of today. There is quite a significant update in the various sections as outlined on pages 6 and 7 of the August EMIR FAQ Update from ESMA (link to ESMA PDF) with 25 new answers covering OTC derivatives, CCPs and Trade Reporting. http://www.esma.europa.eu/news/Updated-EMIR-QA https://theotcspace.com/2013/08/05/25-new-clarifications-on-emir-from-esma-faq-update/ http://regulatoryreform.wordpress.com/2013/08/05/esma-updates-emir-qa/ http://regtechfs.com/no-easy-answers-new-emir-qa-extends-classification-challenge/ The ESMA FAQ Brings and End to Individual Segregation By Value (But you can call it an Omnibus) On page 31 of the newly updated ESMA FAQ on EMIR the  world of segregation models at CCP’s for clearing OTC derivatives finds a much-anticipated clarification on the Individual Segregation Account (ISA) model. https://theotcspace.com/2013/08/05/the-esma-faq-brings-and-end-to-individual-segregation-by-value-but-you-can-call-it-an-omnibus/ Esma confirms futures reporting delay Europe's top securities regulator has confirmed its plans to delay the start of key new derivatives reporting rules by up to a year, and described the issue as a "matter of urgency" to the European Commission. http://www.esma.europa.eu/node/67001 https://theotcspace.com/2013/08/08/esma-now-officially-postpones-etd-reporting-until-january-2015/ http://www.efinancialnews.com/story/2013-08-09/esma-confirms-futures-reporting-delay http://regulatoryreform.wordpress.com/2013/08/12/esma-proposes-delay-to-emir-etd-reporting/ EMIR Reporting: Industry Asks for More Time On 31 July, five industry associations – the Alternative Investment Management Association (AIMA), the International Swaps and Derivatives Association (ISDA), the British Bankers’ Association (BBA), Associazione Italiana Intermediari Mobiliari (ASSOSIM) and the German Banking Industry Committee (DGSV) – wrote to the European Securities and Markets Authority (ESMA) regarding concerns about the implementation of trade reporting under EMIR. http://regulatoryreform.wordpress.com/2013/08/07/emir-reporting-industry-asks-for-more-time/ 27 days left: We need EMIRacle to save our bacon! We are close to shutting down EU OTC trading.  A mere five work weeks from the EMIR deadline, by which banks must have classified their counterparties in order to reconcile portfolios with them, we have almost reached an impasse. Will the industry mobilise and help your local pig farmer to stay in business by enabling him to continue to hedge against supply risks? http://regtechfs.com/27-days-left-we-need-emiracle-to-save-our-bacon/ Deutsche Bank warns proposed tax could hurt Europe's FX market Aug 6 (IFR) – A proposed European financial transaction tax of 0.01% on all derivatives transactions could bring foreign exchange markets in Europe to their knees, according to Deutsche Bank analysts. http://www.reuters.com/article/2013/08/06/derivatives-tax-fx-idUSL1N0G71KV20130806 FCA Legislation Update On 2 August 2013, the FCA published its Policy development update for July 2013 (PDU 4) which details forthcoming FCA publications relating to a number of areas, as detailed below. http://regulatoryreform.wordpress.com/2013/08/05/fca-legislation-update-3/ EMIR – second Trade Reporting Delay Non-shock Euroclear has confirmed the rumour of a delay in the enforcement of trade-reporting. In a statement which will surprise no-one, an ESMA spokesperson said that it will “most probably” (which we can read as “almost certainly”) delay the compliance deadline for ETD trade reporting by one year to January 2015. http://regulatoryreform.wordpress.com/2013/08/05/emir-second-trade-reporting-delay-non-shock/ Delegated Regulatory Reporting: Considerations, Risks and Costs One of the challenges that firms are now wrestling with is the implications of delegated reporting—where counterparties to a trade have the ability to designate their trade repository (TR) reporting obligation to another party—and how both parties to a trade will have to maintain and report their view of a trade. http://gmblog.sapient.com/?p=1804 Library of EMIR Documentation from the Financial Conduct Authority If you need a convenient way to browse EMIR documents, the UK FCA has a site which is handy, and somewhat easier to navigate than the ESMA site. https://theotcspace.com/2013/08/05/library-of-emir-documentation-from-the-financial-conduct-authority/ European Commission updates MiFID Q&A website On July 22, the European Commission answered the question on whether a rolling spot Foreign Exchange on margin takes the form of a derivative contract or a contract for difference to be considered a financial instrument under the Markets in Financial Instruments Directive (MiFID). http://www.lexology.com/library/detail.aspx?g=d33e12b9-b8d5-43c2-b40d-50544c95f670 Covered bond industry protests against Esma clearing push Esma has ignored calls to exempt covered bond vehicles from clearing, to the dismay of issuers http://www.risk.net/risk-magazine/news/2287165/covered-bond-industry-protests-against-esma-clearing-push UK EMIR Regulations Published On 5 August 2013, the Financial Services and Markets 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) (No.2) Regulations 2013 (the “Regulations”) were published, together with an explanatory memorandum. http://regulatoryreform.wordpress.com/2013/08/08/uk-emir-regulations-published/

(1.2) US

Sefs and ‘Permitted Transactions’ Another interesting development in the adoption of the SEF rules which come into force today. http://singledealerplatforms.org/2013/08/05/sefs-and-permitted-transactions/ ISDA to publish “US/nonUS person” self-certification form ISDA are to publish a “Cross-Border Swaps Representation Letter” in order to facilitate compliance with the CFTC’s final territoriality guidance. http://regulatoryreform.wordpress.com/2013/08/07/isda-to-publish-usnonus-person-self-certification-form/ Independent Agencies, Sometimes in Name Only In 1985, President Ronald Reagan had to fill a Democratic slot on the Securities and Exchange Commission. He chose a young lawyer and economist, Joseph A. Grundfest. http://www.nytimes.com/2013/08/09/business/independent-agencies-sometimes-in-name-only.html?_r=1&

(1.3) INTERNATIONAL & MIXED

No excuses: The CRD IV case for centralising data in 2014 is strong Counterparty classification regimes, such as CRD IV and EMIR, give banks a good reason to centralise their reference data, and the BCBS’ Risk Data Aggregation Principles provide a clear framework for doing so. http://regtechfs.com/no-excuses-the-case-for-centralising-data-in-2014-is-strong/ ISDAFIX, Looking for Evidence of Price-manipulation There has been much recent press on the investigations into ISDAFIX and whether this will turn-out to be similar to the LIBOR rigging scandal. http://www.clarusft.com/isdafix-looking-for-evidence-of-price-manipulation/ Basel's New Guidance on Derivatives' Counterparties Fixes Shortcomings Banks globally have significantly been underestimating important credit risk drivers about their derivatives counterparties. But not measuring counterparty risk in derivatives portfolios can quickly become a problem for all banks and the global economy. http://tabbforum.com/opinions/basels-new-guidance-on-derivatives-counterparties-fixes-shortcomings Soberlook post on capital ratios and repo: do they get all of it right? A post at www.soberlook.com caught our eye. They look at the impact of SIFI 5% minimum capital ratios on repo.  They make some good points but there are some problems too. http://www.secfinmonitor.com/sfm/soberlook-post-on-capital-ratios-and-repo-they-get-part-of-it-right/ China joins the global LEI initiative One of the issues that could have held back the adoption of Legal Entity Identifiers (LEIs) by market participants and regulators has been the question of “who runs the system?” http://www.finextra.com/Community/FullBlog.aspx?blogid=8027 Non-certified CICIs to be deleted With the European reporting deadline creeping closer a number of questions have arisen in Europe around the regulatory requirement, which legal entity identifier is to be used under EMIR. There was no clear guidance available from regulators nor trade repositories apart that the expectation was that (pre-) LEIs were to be used to report legal entities. https://theotcspace.com/2013/08/12/cicis-for-non-us-entities-to-be-deleted/

(2) TECHNOLOGY

Risk technology rankings Trading and risk management is essentially about anticipating the future – making the right calls in terms of where the market is going, and being prepared in case it veers off course. But banks and other financial institutions are currently focusing on the here-and-now of compliance, pinned back by a welter of new regulation. http://www.rulefinancial.com/opinions/points-of-view/how-regulators-are-driving-change-in-trading-and-creating-a-futurisation-of-the-swaps-market.aspx Routing to the new markets A multitude of new trading venues launching in the derivatives markets are challenging trading systems designed to deal with specific markets, finds Dan Barnes. http://www.fow.com/Article/3240700/Routing-to-the-new-markets.html Bloomberg and LCH team up to ease collateral strain LCH.Clearnet, the clearing house majority-owned by the London Stock Exchange, has entered into a partnership with Bloomberg to better control the rising collateral costs of swaps trades by bringing crucial analytics straight to traders’ desktops. http://www.efinancialnews.com/story/2013-08-07/bloomberg-lch-collateral-analytics-tool Hubs will not fix clearing certainty issue, critics claim Rival services from Markit and Traiana are gaining support, but detractors claim the hubs could be made redundant by CCP credit checks http://www.risk.net/risk-magazine/news/2287899/hubs-will-not-fix-clearing-certainty-issue-critics-claim

(3) INFRASTRUCTURE

Integral eyes first FX-only SEF Integral Development has filed an application with the US derivatives regulator to launch a trading platform for foreign exchange derivatives, becoming one of only a few firms to target the asset class as a result of G20-led reforms. http://www.efinancialnews.com/story/2013-08-06/integral-lodges-first-dedicated-fx-sef-application Upstart US exchange plots European foray Eris Exchange, a start-up US derivatives platform backed by large trading firms, has held discussions with a number of European exchanges and clearing houses about launching its products in the region. http://www.efinancialnews.com/story/2013-05-08/eris-exchange-eyes-european-foray ICE approved for buy-side European CDS clearing The European post-trade arm of derivatives exchange operator IntercontinentalExchange (ICE) will offer client clearing for European credit default swaps (CDS) from October, after receiving regulatory approval. http://www.thetradenews.com/news/Asset_Classes/Derivatives/ICE_approved_for_buy-side_European_CDS_clearing.aspx http://www.nasdaq.com/article/intercontinentalexchange-readies-swap-trading-platform-20130805-00992 SLOB vs. CLOB I just read Haim Bodek’s “The Problem of HFT.”  It reinforced my belief in what I’d long concluded, namely, that the problematic aspects of HFT result from the decision of the SEC to create a Simulacrum Limit Order Book-a SLOB-rather than a true Central Limit Order Book-a CLOB-when it promulgated RegNMS. http://streetwiseprofessor.com/?p=7530 Forex Sefs worry clients could be driven to non-Sef rivals Multi-dealer platforms have to register as Sefs – but clients could choose to use other venues and avoid extra legal work http://www.risk.net/risk-magazine/news/2286766/forex-sefs-worry-clients-could-be-driven-to-nonsef-rivals SEF operators position for Europe Operators of swap execution facilities (SEFs) in the US are seeking to leverage operations ahead of final rules for equivalent platforms in Europe, as preparations for the new world order of OTC derivatives trading intensifies. http://www.thetradenews.com/news/Regions/Americas/SEF_operators_position_for_Europe.aspx Dark pool trading soars to record levels in Europe European share trading taking place in anonymous, off-exchange venues known as “dark pools” reached its highest-ever level in July, amid lower volatility and a growing proliferation of high-frequency trading on the platforms. http://www.efinancialnews.com/story/2013-08-12/dark-pool-trading-record-levels-europe-august-2013 Eurex Clearing ready for ESMA’s individual client segregation model On 5 August 2013 the European Securities and Markets Authority (ESMA) finally provided clarity that individual client segregation (see article 39(3) of the European Markets Infrastructure Regulation (EMIR)) requires that the actual assets of the client are segregated and available for porting. http://www.eurexclearing.com/clearing-en/about-us/news/597804/ http://www.secfinmonitor.com/sfm/eurex-clearing-ready-for-esmas-individual-client-segregation-model/ Eurex ups the stakes in battle for swaps clearing Eurex Clearing is set open a new front in its battle to grab a greater share of interest-rate swap clearing with the launch of a new service that aims to reduce the costs associated with G20-led derivatives regulation. http://www.efinancialnews.com/story/2013-08-12/eurex-ups-the-stakes-in-battle-for-swaps-clearing Trade repositories eye Remit opportunity Entities backing trade repositories for OTC derivatives show interest in registering as RRMs http://www.risk.net/energy-risk/news/2287567/trade-repositories-eye-remit-opportunity

(4) BUSINESS & OTHER STORIES

What are Your Selection Criteria for Choosing a Clearing Member and Clearing House? Over the coming 18 months many firms who choose not to join a CCP directly, will need to choose a Clearing Member (CM) to provide them with access to a CCP. https://theotcspace.com/2013/08/08/what-are-your-selection-criteria-for-choosing-a-clearing-member-and-clearing-house/ Legal costs mount for Europe’s banks Many of Europe’s top banks have more than tripled their provisions for litigation and regulatory expenses over the past year as they attempt to cope with legacy issues from the financial crisis and potential claims from global watchdogs. http://www.efinancialnews.com/story/2013-08-05/legal-costs-mount-for-europes-banks The Changing Environment of Collateral on the Buy Side Daniel McNavich, vice president, Apex Collateral, SunGard explains how the buy side can embrace some of the opportunities of using collateral to help drive added revenue and increased efficiencies including inventory management, collateral trading and optimization. http://www.derivsource.com/content/changing-environment-collateral-buy-side ICSDs rise to the collateral challenge This month Barclays became the latest bank to highlight concerns about the impact of new regulations on the repo market. But as new rules threaten the market, industry initiatives are increasing efficiencies. http://www.fow.com/Article/3242069/ICSDs-rise-to-the-collateral-challenge.html 4Sight publishes “Collateral Optimization: Beyond Cheapest to Deliver and the Big Red Button Initially, optimization started out as the ability to centralise the collateral function across business lines and assign a cost to collateral assets. http://www.secfinmonitor.com/sfm/4sight-publishes-collateral-optimization-beyond-cheapest-to-deliver-and-the-big-red-button/ Have you Got All These Components in Your Systemic Risk Plan? DTCC Defines The Threats A great paper from DTCC which paints a scary picture of the many ways our capital markets could be destabilised https://theotcspace.com/2013/08/07/have-you-got-all-these-components-in-your-systemic-risk-plan-dtcc-defines-the-threats/ http://www.dtcc.com/news/press/releases/2013/beyond_the_horizon_systemic_risk.php US cleared swaps volume doubles OTC derivatives clearing volumes in the US have doubled since January, new aggregated data from three central counterparties (CCPs) shows. http://www.thetradenews.com/news/Asset_Classes/Derivatives/US_cleared_swaps_volume_doubles.aspx ISDA Readies “2013 Collateral Agreement Negative Interest Protocol” ISDA is currently drafting a protocol designed to allow market participants to amend the terms of bilateral (not unilateral) credit support documentation to account for negative interest amounts on cash collateral http://regulatoryreform.wordpress.com/2013/08/05/isda-readies-2013-collateral-agreement-negative-interest-protocol/ European banks face near €60bn hit if rates rise European banks could lose up to a fifth of their value should yields on US Treasury bonds continue to spike, according to analysts. http://www.efinancialnews.com/story/2013-08-12/european-banks-treasury-yield-rise-risk ?Backwards Regulation Risk Systemic OTC The Is | Should Bilateral Margin and Capital Have Come Before Clearing? I often notice that the different regulators and the different associated interacting market participants, utilities and commentators dissociate regulations of bank capital (e.g. Basel III) and accounting rules (e.g. US GAAP, IFRS) on one hand from regulations of market practice (e.g. clearing mandate, mandatory bilateral margin) on the other.   Re-associating these may hold the key to making, rather than inhibiting systemic risk reduction happen in practice as well as resolving the cross-border regulatory discussion. https://theotcspace.com/2013/08/08/backwards-regulation-otc-the-is-margin-and-capital-bilateral-then-clearing/