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July 8, 2013

The week that was (aka Dazzling Derivatives; issue of 8th July 2013)

Dear all,

The TOP Stories of last week:

Surprise, surprise! Reporting comes in 2014 For spectators of the implemention of the clearing & reporting mandate this move comes absolutely unexpected [sic]. Mandatory reporting for all derivative asset classes has now been moved to January 2014 – but is this really and finally the fixed date?
Margin Rules for Non-Cleared Derivatives to be Finalised in July IOSCO said it plans to finalise the “Principles for margin requirements for non-centrally cleared derivatives” in July together with the BCBS, following discussion of a number of outstanding issues, including whether and how rehypothecation would be permitted and the treatment of cross-currency swaps.
The LEI is a slooow birth Forbes has a good article on the creation process of the LEI and also puts a spotlight on the political conundrums around extraterritoriality. And the ROC also recognizes the slowness of it all.
Are LSOC segregation models coming to Europe? RISK describes (subs required) the current frenzy of clearing houses to understand from ESMA if an LSOC-like segregation model would be approved by ESMA.
No CVA exemptions in US Basel III rules Risk Magazine reports (subs required) that US-based regulators will not exempt any derivatives-counterparties from CVA requirements. This may apparently squeeze out US-based banks, who will face stiff competition from European banks that are exempt from charging CVA for their corporate, sovereign, and pension fund counterparties to derivatives contracts.

(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

Reporting delayed (again) to January 2014 In a totally unexpected [sic] move ESMA has now moved the official launch date for EMIR reporting to January 1st, 2014. But the footnote also says that "this should not be understood as meaning that the registration decision [of the TRs] will necessarily be adopted on 24th September 2013". http://www.esma.europa.eu/page/European-Market-Infrastructure-Regulation-EMIR Dealers ask Esma to bless Lsoc-based clearing Industry wants to know whether an approach based on US standards will meet European requirements http://www.risk.net/risk-magazine/news/2278385/dealers-ask-esma-to-bless-lsocbased-clearing http://regulatoryreform.wordpress.com/2013/07/02/dealers-seek-esma-approval-of-third-way-over-asset-segregation/ Financial Transaction Tax: wide scope and attention to pension funds and SMEs With a twist of the knife the EU parliament has added salt to the wound: any firm not paying the FTT will be legally not-entitled to ‘own’ the receipt of any securities, therefore making the trade null and void. http://www.europarl.europa.eu/news/en/pressroom/content/20130628IPR14589/html/Financial-Transaction-Tax-wide-scope-and-attention-to-pension-funds-and-SMEs ISDA Readies the EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol ISDA is currently putting the finishing touches to its “EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol” (the Protocol), the final version of which is likely to be published later this month. http://regulatoryreform.wordpress.com/2013/07/02/isda-readies-the-emir-portfolio-reconciliation-dispute-resolution-and-disclosure-protocol/

(1.2) US

Dodd-Frank: Yet More No-Action In a wholly unexpected move, the CFTC issued another two no-action letters. http://regulatoryreform.wordpress.com/2013/07/02/dodd-frank-yet-more-no-action/ Dodd-Frank is 3. So why isn’t it ready yet? Davis Polk, a law firm that tracks rulemaking mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, is out with its latest progress report, and the results sound pretty dismal. About 70 percent of the 398 deadlines have passed, and out of those, 62.7 percent have been missed. So as the law’s third anniversary approaches, less than half of it has been actually implemented. Should you be outraged? http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/02/dodd-frank-is-3-so-why-isnt-it-ready-yet/ Deadline on Trading Rules Abroad Splits an Agency Wall Street lobbyists, seeking to delay a July 12 deadline for rules that would rein in lucrative trading by banks overseas, pressed their case before a top Washington regulator last week. http://dealbook.nytimes.com/2013/07/02/deadline-splits-an-agency-on-trading-rules-abroad/ CFTC to Hold Open Meeting to Consider Cross-Border Final Guidance; and Cross-Border Phase-In Exemptive Order Washington, DC – U.S. Commodity Futures Trading Commission (CFTC) Chairman Gary Gensler today announced the Commission will hold a public meeting on Friday, July 12, 2013, at 9:30 a.m. http://www.cftc.gov/PressRoom/PressReleases/pr6638-13 Swaps regulator Sommers to step down next week (Reuters) – Jill Sommers said she would step down as a top swaps regulator next week after the agency she works for sued former MF Global chief Jon Corzine over the collapse of his firm, an investigation she had overseen. http://uk.reuters.com/article/2013/07/01/us-derivatives-cftc-sommers-idUSBRE96015I20130701 The New World of Swap Execution: Timelines for SEF Preparation At a DerivSource webinar, speakers discussed the recently finalized CFTC rules on swap execution facilities (SEFs) and offered insight into the coming adoption and compliance timelines that market participants should be gearing up for. http://www.derivsource.com/articles/new-world-swap-execution-timelines-sef-preparation All aboard: The trials and triumphs of the June 10 clearing deadline A combination of hard work, caution and some luck saw the industry through the second of the three US clearing deadlines on June 10. But while it was a triumph for many, it proved testing for some. http://www.risk.net/risk-magazine/feature/2277093/all-aboard-the-trials-and-triumphs-of-the-june-10-clearing-deadline

(1.3) INTERNATIONAL & MIXED

Margin Rules for Non-Cleared Derivatives to be Finalised in July On 18-19 June 2013, the Board of the International Organization of Securities Commissions (IOSCO) met in Montreal. Following this meeting, a press release was published on 1 July 2013 http://regulatoryreform.wordpress.com/2013/07/03/margin-rules-for-non-cleared-derivatives-to-be-finalised-in-july/ http://www.iosco.org/news/pdf/IOSCONEWS286.pdf BCBS Consults on Exposures to CCPs On 28 June 2013, the Basel Committee on Banking Supervision (BCBS) published a consultative document entitled “Capital treatment of bank exposures to central counterparties” (CCPs). http://regulatoryreform.wordpress.com/2013/07/01/bcbs-consults-on-exposures-to-ccps/ http://www.cftclaw.com/2013/07/basel-committee-recommends-capital-risk-assessment/ http://www.bis.org/press/p130628.htm Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement The framework text sets out the Basel Committee's methodology for assessing and identifying global systemically important banks (G-SIBs). It also describes the additional loss absorbency requirements that will apply to G-SIBs, the phase-in arrangements for these requirements and the disclosures that banks above a certain size are required to make to enable the framework to operate on the basis of publically available information. http://www.bis.org/publ/bcbs255.htm Federal Reserve adopts Basel III for US banks Fed Board unanimously votes to introduce new capital requirements as of January 1 http://www.risk.net/risk-magazine/news/2279051/federal-reserve-adopts-basel-iii-for-us-banks Basel leverage ratio would double up collateralised OTC positions Ratio could be a 'game-changer', dealers warn, as Basel Committee proposes counting received collateral as well as derivatives exposures http://www.risk.net/risk-magazine/news/2277910/basel-leverage-ratio-would-double-up-collateralised-otc-positions Banks round on LCR approach to derivatives collateral flows The Basel Committee decided earlier this year to include collateral outflows arising from changes in derivatives values in bank liquidity requirements. Their suggested approach, however, has worried some in the industry. http://www.risk.net/risk-magazine/feature/2277631/banks-round-on-lcr-approach-to-derivatives-collateral-flows FCMs split over capital for client clearing promises Some banks believe capital is – or will be – needed to support guarantees to clients http://www.risk.net/risk-magazine/news/2276461/fcms-split-over-capital-for-client-clearing-promises CVA and CDS | Proxy Problems As CDS contracts continue to be perceived as the ‘bad guys’ in global finance, regulators are limiting their availability to be used as hedging tools, even w hen it’s perfectly OK to use derivatives from other asset classes for a similar purpose. http://www.risk.net/risk-magazine/news/2279269/no-cva-exemptions-in-us-basel-iii-rules The CVA helter skelter: European supervisors could quash exemptions Europe’s credit valuation adjustment exemption was the outcome of a protracted legislative debate, but it may prove to be the end of a chapter, rather than the end of the story. As US banks protest and supervisors review the issue, a number of problems are emerging. http://www.risk.net/risk-magazine/feature/2277765/the-cva-helter-skelter-european-supervisors-could-quash-exemptions Basel tries to create clearing pull with new capital rules Dealers say rules for default fund exposures are an improvement, but risk weights are not tied to "real default probabilities" http://www.risk.net/risk-magazine/news/2278605/basel-tries-to-create-clearing-pull-with-new-capital-rules

(2) TECHNOLOGY

Legal Entity Identifier (LEI) Progresses, Fitfully The Legal Entity Identifier (LEI) project for financial services is taking longer than planned. http://www.forbes.com/sites/tomgroenfeldt/2013/07/01/legal-entity-identifier-lei-progresses-fitfully/ LEI Regulatory Oversight Committee Says its Size is Slowing Short-Term Progress The Regulatory Oversight Committee (ROC) of the Global Legal Entity Identifier System has missed the end of June deadline it set itself to provide details on the endorsement of pre-Local Operating Units (LOUs) saying that the size of the Committee has slowed down the finalisation and publication of the relevant documents. http://referencedatareview.com/blog/lei-regulatory-oversight-committee-says-its-size-slowing-short-term-progress Markit – Plumbers in suits A private company controlled by banks connects much of the financial system http://www.economist.com/news/finance-and-economics/21580494-private-company-controlled-banks-connects-much-financial Trade rejections spark clearing document rethink Industry group considers changes to the standard cleared derivatives execution agreement, following concerns that dealers have the unilateral right to terminate rejected cleared trades http://www.risk.net/risk-magazine/news/2278401/trade-rejections-spark-clearing-document-rethink

(3) INFRASTRUCTURE

HFTs are no longer just about the need for speed While the polarised debate surrounding high-frequency trading continues apace, the world’s HFTs are getting on with their daily business and are quietly being forced to adapt and evolve. http://www.efinancialnews.com/story/2013-07-01/hfts-no-longer-just-about-need-for-speed-comment Find out more about our EurexOTC Clear on-boarding incentive program With the successful launch of our EurexOTC Clear services for interest rate swaps in November 2012, we have been continuously expanding our functionalities to meet market demand and improve our service even more. http://www.eurexclearing.com/clearing-en/about-us/news/556306/

(4) BUSINESS & OTHER STORIES

Innovation and Change in a Regulatory Fishbowl Faced with intensifying regulatory burdens and a challenging business environment, capital markets firms may find it difficult to drive meaningful change. But now is precisely the time firms need to innovate most. http://www.derivalert.org/blog/bid/93430/Innovation-and-Change-in-a-Regulatory-Fishbowl The New Paradigm for OTC Valuation The methods for pricing derivatives have grown increasingly complex, and legacy systems and processes might not be ready for the challenge. http://www.advancedtrading.com/derivatives/the-new-paradigm-for-otc-valuation/240157601 The Last Mystery of the Financial Crisis It's long been suspected that ratings agencies like Moody's and Standard & Poor's helped trigger the meltdown. A new trove of embarrassing documents shows how they did it http://finance.yahoo.com/news/the-last-mystery-of-the-financial-crisis-154447818.html?page=all


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