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August 5, 2013

The week that was (aka Dazzling Derivatives; issue of 5th August 2013)

Dear all,

The TOP Stories of last week:

ETD reporting delayed but TR reconciliation on track As reported last week, ESMA now officially told a Financial News (subs required) that ETD reporting will be delayed up to a year. At the same time trade repositories are considering their options on reconciling data amongst users.
CCPs for CCPs? Deus Ex Macchiato pre-holiday is tinkering around with the concept of a CCP to clear trades between other CCPs, (part 1) and part 2 – amusing or terrifying?
Deliverable Swap Futures not meeting the hype Current figures indicate that deliverable swap futures (DSF) are not living up to the hype they created when they were first introduced. On top of that the uncertain US taxation of DSFs leaves market participants with worries.
The GFMA has provided an update on the LEI implementation An update on implementation of the global LEI system
CCP segregation models The OTC Space has an overview and compilation of good links to available information on segregation models at the various worldwide CCPs.

(FYI, some articles require a subscription (e.g. RISK, Financial News), others a free registration (e.g. Tabb Forum, DerivSource))

THE ARTICLES

 

(1) REGULATION

 

(1.1) EUROPE

Esma yields to pressure on futures reporting Europe’s top securities regulator is set to delay the start of key derivatives reporting rules by up to a year following intense pressure from industry participants. http://www.efinancialnews.com/story/2013-07-29/esma-yields-to-pressure-on-futures-reporting Emir flaws could see futures reporting delayed till 2015 Esma acknowledges industry concerns over delegated reporting provisions and confirms it is considering a one-year delay http://www.risk.net/risk-magazine/news/2285237/emir-flaws-could-see-futures-reporting-delayed-till-2015 Trade repositories tackle reconciliation issue Rival trade repositories have joined forces to draft recommendations for the European Securities Market Authority (ESMA) on how to share data amongst themselves. http://www.thetradenews.com/news/Asset_Classes/Derivatives/Trade_repositories_tackle_reconciliation_issue.aspx IOSCO expresses concerns on EMIR CCP recognition processes The International Organization of Securities Commissions’ (IOSCO) Asia Pacific Regional Committee has sent a letter to European Commissioner Michel Barnier expressing concern about the recognition process for Asia Pacific Central Counterparties (CCPs) under the European Markets Infrastructure Regulation (EMIR). http://impendiumsystems.com/iosco-expresses-concerns-on-emir-ccp-recognition-processes/ http://regulatoryreform.wordpress.com/2013/08/02/iosco-warns-regulators-on-emir-ccp-recognition-processes/ Regulatory front-running Front-running is regarded as a form of market abuse and is banned accordingly. Although it is widely accepted that MiFID II will implement new regulation on algorithmic and high-frequency trading, that doesn’t seem to have stopped the law makers indulging in a little ‘front-running’ of their own. http://regulation.fidessa.com/2013/08/01/regulatory-front-running EMIR ultimatum: EU regulators, banks and their customers in Mexican standoff Why EMIR has some banks threatening to stop trading derivatives by 15 September. http://regtechfs.com/emir-ultimatum-eu-regulators-banks-and-their-customers-in-mexican-standoff/ Basel III: Politik muss Wahlrecht bei Großkreditverordnung nutzen Die Deutsche Kreditwirtschaft fordert das Bundesministerium der Finanzen (BMF) auf, in der Großkredit- und Millionenkreditverordnung (GroMiKV) die in den EU-Vorgaben vorgesehenen Wahlrechte auch zu nutzen. Der nun vorliegende Entwurf des BMF tut dies nur in sehr eingeschränktem Umfang. http://www.voeb.de/de/pressezentrum/pressemitteilungen/pressemitteilung_2013_042.html Here be dragons: Will EMIR’s extraterritoriality rules deter third country firms? It is common knowledge that the central clearing and risk mitigation requirements apply to any third country firm trading with an EU entity. http://regtechfs.com/here-be-dragons-will-emirs-extraterritoriality-rules-deter-third-country-firms/ Here algo again: MiFID II will require your attention in 2014 For firms who remember MiFID I, and those that don’t, round two is almost upon us. This month, the Council of the EU agreed their general approach, meaning that the draft of MiFID II/MiFIR is free to advance to the European Parliament. If all goes according to the current plan, the new combined legislation will be with us in time for 2015 implementation. http://www.bankingtech.com/154102/here-algo-again-mifid-ii-will-require-your-attention-in-2014/

(1.2) US

A Familiar Model Emerges for Swaps The voice provision in the final SEF rules, along with the decision to reduce the request-for-quote requirement, has facilitated the emergence of a business model that can replicate today’s existing workflow for large swaps trades. Over the coming months we will discover where the rubber meets the road of reform and which business models will gain traction. http://tabbforum.com/opinions/a-familiar-model-emerges-for-swaps SEC, CFTC officials to testify on Dodd-Frank implementation Senators will be questioning top officials of the Securities and Exchange Commission and Commodity Futures Trading Commission on Tuesday about whether implementation of the Dodd-Frank Wall Street reform law is moving too slowly as it moves into its third year. http://blogs.marketwatch.com/capitolreport/2013/07/26/sec-cftc-officials-to-testify-on-dodd-frank-implementation/ CFTC Division of Clearing and Risk Issues Notice Regarding Expiration of Cross-Border Exemptive Relief from the Clearing Requirement Washington, DC —The Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk announced today that on October 9, 2013, certain exemptive relief regarding the Clearing Requirement is scheduled to expire. http://www.cftc.gov/PressRoom/PressReleases/pr6657-13 Gensler: CFTC Faces Challenges Implementing Volcker Rule On Tuesday July 30th, Gary Gensler, Chairman of the Commodity Futures Trading Commission (CFTC), testified before US Senate Committee that one of the largest issues the CFTC will confront in the coming years is the implementation of the Volcker Rule, which will prohibit all banks from doing proprietary trading. http://www.cftclaw.com/2013/07/gensler-cftc-volcker-rule/ CFTC chair outlines areas of focus, says looking at direct market access CFTC Chairman Gensler told a Senate committee about areas of focus such as enforcement and harmonisation; he also noted an initiative to look at direct market access. http://www.automatedtrader.net/headlines/144129/cftc-chair-outlines-areas-of-focus–says-looking-at-direct-market–access Unclear on substituted compliance The US Commodity Futures Trading Commission’s final cross-border guidance, published on July 12, provides answers to some long-running puzzles, but also generates a host of new questions. Critics say the rules are rushed and full of ambiguities – not least on how substituted compliance will work in practice. http://www.risk.net/risk-magazine/feature/2284461/unclear-on-substituted-compliance Dodd-Frank: 3 Years of Change and Still No Resolution As firms continue to wait for final Dodd-Frank rules, the industry needs to find a balance between leveraging solutions to meet specific regulatory needs and continuing the trend toward system consolidation. http://www.derivalert.org/blog/bid/94140/Dodd-Frank-3-Years-of-Change-and-Still-No-Resolution CFTC-SEC cross-border split could 'tarnish' US swap markets Regulators "going in two different directions" says Republican senator – and may face fresh calls to be merged http://www.risk.net/risk-magazine/news/2285813/cftcsec-crossborder-split-could-tarnish-us-swap-markets Full CFTC Clearing to be Enforced from October 2013 31st July 2013: The CFTC’s Division of Clearing and Risk announced the “final” expiry date of cross-border exemptive relief from the clearing requirement. http://regulatoryreform.wordpress.com/2013/08/01/full-cftc-clearing-to-be-enforced-from-october-2013/ SDR, Block Trade Rule, 30 July Update Those of you that read my previous post on the Block Trade Rule will know that on July 30th we moved from the Interim period to the Initial period. http://www.clarusft.com/sdr-block-trade-rule-30-july-update/

(1.3) INTERNATIONAL & MIXED

EU Faces Basel Bank Capital Scrutiny as Regulators Police Rules European Union bank-capital rules, already criticized by global regulators, face another international probe just months after they start to take effect next year. http://www.bloomberg.com/news/2013-07-29/eu-faces-basel-bank-capital-scrutiny-as-regulators-police-rules.html 'The Shifting Contours Of OTC Derivatives Regulation' BNP Paribas Securities Services (BNP Paribas) provides the latest developments on EMIR, Dodd-Frank and the international policy framework with its latest document. http://www.iss-mag.com/regulations-and-compliance/the-shifting-contours-of-otc-derivatives-regula Basel's New Guidance on Derivatives' Counterparties Fixes Shortcomings In 1973, when the Basel Accord was in its early gestation period, global derivatives markets were primarily comprised of exchange-traded commodity derivatives. Four decades later, the derivatives markets total about $632 trillion and are overwhelmingly over the counter. http://www.americanbanker.com/bankthink/basels-new-guidance-on-derivatives-counterparties-fixes-shortcomings-1061015-1.html Uncleared swaps and higher initial margin; can a margin clearing mechanism reduce the pain? Will the IOSCO margin rules for uncleared swaps put derivatives investors active in that market on a collision course with their broker/dealers? http://www.secfinmonitor.com/sfm/uncleared-swaps-and-higher-initial-margin-can-a-margin-clearing-mechanism-reduce-the-pain/ Notes from Public REMIT Workshop 11 July 2013 See here for my notes taken at the public REMIT workshop in Ljubljana on the 11th. http://www.etr-advisory.com/ETRNotesfromthePublicREMITworkshop11Jul13.pdf

(2) TECHNOLOGY

Front Office Analytics for CVA, Capital and Margin One of the challenges facing traders in the future OTC ecosystem is the greatly increased indirect costs of each trade.  Markit have added to their front office “IRM” tool the ability to analyse a trade in terms of CVA, Regulatory Capital, Margin http://www.markit.com/en/media-centre/press-releases/detail.page?dcr=/markit/PressRelease/data/2013/July/15 Banks playing it safe with single-dealer platforms The forex market has plenty of third-party multi-dealer platforms on which clients can request quotes from several sources. With this model in place, why do so many banks remain wedded to single-dealer solutions http://www.risk.net/structured-products/feature/2283932/banks-playing-it-safe-with-singledealer-platforms Fidessa opens up the world of post-trade processing Fidessa group plc has today announced the availability of its open Post-trade Confirmation Hub which allows buy-side and sell-side firms to confirm trades between themselves via FIX. Key to the initiative is that firms can certify once to the hub and then be part of Fidessa’s global trading community of 3,600 buy-sides and 775 brokers. http://www.fidessa.com/page/20824/fidessa-opens-up-the-world-of-post-trade-processing http://www.efinancialnews.com/story/2013-08-01/fidessa-bids-to-shake-up-post-trade First trade Delivered through Traiana’s Harmony CCP Connect link to LCH.Clearnet Traiana, the leading provider of pre-trade risk and post-trade processing solutions, announces today that the first interdealer non deliverable forward (NDF) trade has been delivered to LCH.Clearnet Ltd’s (LCH.Clearnet) ForexClear service through the recently established link with Traiana’s Harmony CCP Connect. The trade was a USD/KRW NDF with HSBC as one of the trading parties. http://www.derivsource.com/articles/first-trade-delivered-through-traiana%E2%80%99s-harmony-ccp-connect-link-lchclearnet

(3) INFRASTRUCTURE

SEF Industry Barometer from Tabb Group An excellent update to Tabb Group’s SEF barometer has just been published, which was based on a survey of over 150 participants (from dealers, buy-side and vendors). http://singledealerplatforms.org/2013/07/31/sef-industry-barometer-from-tabb-group/ CFTC Issues Order of Temporary Registration as a Swap Execution Facility to Bloomberg SEF LLC Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC or Commission) yesterday approved the application of Bloomberg SEF LLC (BSEF) for temporary registration as a swap execution facility (SEF). http://www.cftc.gov/PressRoom/PressReleases/pr6656-13 http://www.thetradenews.com/news/Regions/Americas/CFTC_grants_Bloomberg_SEF_approval.aspx A summer daydream, part 1, 2 In a city park, perhaps in Brussels, perhaps in Washington, perhaps elsewhere, it is hot. A regulator named Alice lounges on a park bench on her day off. She feels the heat of the sun, and, exhausted by her labours, she falls asleep… http://blog.rivast.com/?p=7408 http://blog.rivast.com/?p=7419 LEI’s, From Theory To Practice What started as a theoretical discussion on identification of financial institutions has now turned into a driving need to meet deadlines due to an EU regulation. We are, of course, talking about legal entity identifiers (LEIs). http://www.iss-mag.com/forward-thinkers/leia-s,-from-theory-to-practise FSB agrees to global aggregation of trade repository data The Financial Stability Board (FSB) met on 24 June to discuss “vulnerabilities affecting the global financial system and progress in authorities’ work to strengthen global financial regulation.” http://www.finextra.com/Community/FullBlog.aspx?blogid=7993 http://www.financialstabilityboard.org/press/pr_130625.pdf CME vs LCH.Clearnet: Clients may face CCP-specific pricing, warn FCMs The two biggest clearing houses for interest rate swaps, CME and LCH.Clearnet, have different margin models – which may affect the prices charged to clients by clearing members. It could also affect the contest between the two venues. http://www.risk.net/risk-magazine/feature/2283783/cme-vs-lchclearnet-clients-may-face-ccpspecific-pricing-warn-fcms Cross-margining at CME slowed by practical challenges Interesting commentary on combining futures into an OTC portfolio at CME http://www.risk.net/risk-magazine/news/2284938/crossmargining-at-cme-slowed-by-practical-challenges CME Group profit beats Wall St. estimate as trading climbs (Reuters) – CME Group Inc, the world's biggest futures exchange operator, on Thursday reported a 27 percent rise in quarterly profit, beating expectations, as trading jumped both at home and abroad. http://www.reuters.com/article/2013/08/01/us-exchanges-cmegroup-idUSBRE9700MQ20130801 ICE Clear Europe to start Client Clearing for CDS ICE CLEAR EUROPE TO INTRODUCE CLIENT CLEARING FOR INDEX AND SINGLE NAME CDS ON OCTOBER 7, 2013; OVER EUR 12 TRILLION IN EUROPEAN CDS CLEARED TO DATE http://ir.theice.com/releasedetail.cfm?ReleaseID=782159 Eurex, CME and NYSE Liffe weigh long-dated inflation futures Pension funds look for alternatives to OTC inflation swaps, as clearing services remain on the drawing board http://www.risk.net/risk-magazine/news/2286109/eurex-cme-and-nyse-liffe-weigh-longdated-inflation-futures

(4) BUSINESS & OTHER STORIES

Just because they tell you doesn’t mean it isn’t true Big US banks are warning that new rules on their funding risk damaging the more-than-$7tn “repo market”, where financial institutions borrow against government bonds, potentially destabilising one of the most important financial markets in the world. http://blog.rivast.com/?p=7405 Barclays stock hit by £5.8bn cash call to plug shortfall Barclays will issue £5.8bn in new shares as part of a move to plug a £12.8bn capital shortfall created by new regulatory demands. http://www.bbc.co.uk/news/business-23499769 15 X GDP = 0 (ISDA Media comment) “In the last quarter of 2012 US bank and savings institutions held $223 trillion of derivatives – fifteen times our GDP.” http://isda.mediacomment.org/2013/07/29/15-x-gdp-0/ Taxing Issues for Swap Futures The latest chapter in the story of swap-futures is detailed in a Risk article potential tax issues for Deliverable Swap Futures. http://www.risk.net/risk-magazine/feature/2284269/tax-questions-cloud-prospects-for-cme-swap-future-and-mac-swaps Deliverable Swap Futures: are they living up to the hope and the hype? So how are the CME Deliverable Swap Futures (DSF) doing? Are they living up to the hope (hype?) that as a margin-friendly alternative to cleared swaps they would take the world by storm? Not so much, at least based on the volume and OI figures. http://www.secfinmonitor.com/sfm/deliverable-swap-futures-are-they-living-up-to-the-hope-and-the-hype/ Lack of swaps detail sparks asset protection anxiety Asset managers that trade over-the-counter derivatives are being urged to push for clearer detail from the European Securities and Markets Authority on segregated collateral accounts so they are able to make more informed decisions on a range of different models being offered by clearing providers. http://www.efinancialnews.com/story/2013-07-31/lack-of-swaps-detail-sparks-asset-protection-anxiety It’s all geek to me: The OTC derivatives swamp There's a great wide world of information out there for key movers in the financial sector – but who has time to discover the best of it? We're having a crack. Dialogue highlights interesting and quirky tools, studies, websites and more in the industry. http://www.dialogueonline.info/blogs/paloma-migone/it%E2%80%99s-all-geek-me-otc-derivatives-swamp Should I stay or should I go? Everyone knows that two of the busiest days around the office are the day before you leave on vacation and the day you return. For some of us at ISDA today is getaway day, but that doesn’t mean there isn’t time to spare a few thoughts on the current state of the derivatives markets. http://isda.derivativiews.org/2013/08/02/should-i-stay-or-should-i-go/ Global derivatives markets in transition Guest contribution by Dr Andreas Dombret published in the Börsen-Zeitung on 2013-08-02. The global derivatives markets are close to reaching a turning point. In future, the vast majority of risks associated with over-the-counter (OTC) derivative contracts will be shifted from market participants to central counterparties (CCPs). http://www.bundesbank.de/Redaktion/EN/Standardartikel/Press/Contributions/2013_08_02_dombret_boez.html


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