The week that was (issue of 13.05.2013)

Dear all, This week (16.5.) the CFTC has a hearing on SEF rules – more on what is supposedly discussed here: And: Craig Pirrong tells us about his worst FrankenDodd
May 14, 2013 - Editor
Category: News

Dear all, This week (16.5.) the CFTC has a hearing on SEF rules – more on what is supposedly discussed here: And: Craig Pirrong tells us about his worst FrankenDodd rules (psst, it's the RFQ5 rule for SEFs): Last week's highlights include:

  • REGIS-TR, one of the European trade repositories has signed up KAS Bank as a third-party reporting entity
  • More and more studies, industry groups and academics decry the planned European FTT as a potential nail in the coffin of globally functional financial markets
  • Segregation rules under EMIR lead to a variety of segregation models with pros and cons to each of them
  • The US House Financial Services Committee passed six bills that limit reforms in the complex market of derivatives
  • The CFTC yields to industry pressure and is supposedly reducing the minimum quotes on SEFs to a max of three in their upcoming final rule
  • BIS sees lower outstanding notional with a 1% drop between June and December last year to $631 trillion
  • Clearing houses are testing plans to allow more OTC equity trades to centrally clear

THE ARTICLES Buy-side needs automated systems for swap clearing – TABB Institutional investors risk higher margin requirements if they cannot eliminate errors when communicating swap transaction data to clearing houses, according to a new report from TABB Group. REGIS-TR sign KAS BANK as first participant reporting on behalf of market participants REGIS-TR, the European Trade Repository owned by Clearstream (Deutsche Börse Group) and Iberclear (BME) recently signed KAS BANK as their first participant acting as third party reporting on behalf of other market participants. CFTC issues reprieve on mid-market disclosure CFTC issues no-action letters on certain external business conduct standards under Dodd-Frank, but some participants say the relief has come too late Maintaining Liquidity in European OTC Derivatives Markets in the Age of OTFs IDBs provide a vital function in preserving the liquidity of, and maximizing participation in, both the corporate and government debt markets. To safeguard the efficient functioning of those markets, the Matched Principal method of execution should be maintained in the Organized Trading Facility model. Treasury Warns House Democrats On Derivatives The U.S. Treasury Department on Monday urged lawmakers to reject several proposals designed to roll back existing rules governing derivatives. ICMA report on the systemic importance of collateral, repo and the FTT The systemic importance of collateral and the role of the repo market – ICMA European Repo Council paper highlights the disruptive impact of the proposed FTT on the widespread use of collateral that underpins the modern financial system. Navigating the Minefield of EMIR Segregation Here is a link to an interesting article in Risk Magazine dealing with the issue of segregation under EMIR. Too much choice: The problems with Europe's plethora of segregation models In the US, segregation of client assets is a simple matter – only one approach is allowed for over-the-counter trades. But in Europe, where there are more clearing houses, and no prescribed approach, things are messier. And it could be dealers, not clearing houses, that ultimately decide what is offered. GARP/Bloomberg Webinar: Evolution of the OTC Swaps Market The OTC swaps industry is changing, do you understand the implications? Join Bloomberg and GARP on 14th May for an expert led discussion. 60 Percent of Derivatives Users Unprepared for Dodd Frank and EMIR —Study The vast majority of corporate end users of derivatives are underprepared for compliance with both rule sets due to regulatory uncertainty, over cross-border swaps, according to a survey by Chatham Financial. Legislative package seeks to weaken derivatives provisions of Dodd-Frank law Nearly three years after Congress passed the Dodd-Frank financial law to limit risky activities on Wall Street, a series of bills could weaken regulation of derivatives — the exotic securities that helped fuel the crisis. Swap Regulators Face Congressional Push to Curb Dodd-Frank U.S. regulators face renewed pressure from congressional lawmakers who voted today to ease Dodd-Frank Act derivatives requirements amid criticism from Wall Street and overseas officials that the rules overreach. CFTC Said to Weigh Lower Price-Quote in Dodd-Frank Swap Rule The U.S. Commodity Futures Trading Commission is considering reducing the number of price quotes a buyer must request before trading swaps under final Dodd-Frank Act regulations intended to boost transparency, according to three people briefed on the matter. CFTC Considering Lower Price Quote Requirement for Dodd-Frank Swap Rule The Commodity Futures Trading Commission (CFTC) is reportedly contemplating lowering the number of price quotes a buyer is required to request before trading swaps. Worst of the Worst of Frankendodd: Not As Bad As Gensler Wanted It There are reports that the CFTC will vote on the SEF rule next week.  The rule had been in limbo for months due to Gensler’s insistence that the rule require those requesting a quote solicit them from five potential counterparties. Volumes drift ahead of OTC derivatives reform deadlines Global OTC derivatives trading volumes have slipped as market participants adjust to impending regulation and the emergence of swap futures, new data has shown. Data shows OTC notionals shrank as clearing started in US When a small group of firms became subject to the first US clearing mandate in March, outstanding notionals for clearing-eligible products temporarily dipped. With a larger group of firms set to start clearing in June, could it be a sign of things to come? LSOC Doesn’t Have to Painful for FCMs The exceptions to generalized rules often provide business value and inspire innovation. True to form, the exceptions to the LSOC requirements present potential contractual-based opportunities and advantages for FCMs and their customers. CFTC Provides Foreign Exchange Prime Brokers Relief The Commodity Futures Trading Commission (CFTC) gave last-minute relief to Foreign Exchange prime brokers after listening to complaints that the market could be threatened by new business conduct rules. Hedge funds fill the vacuum in fixed income when banks exit There was an excellent article published on May 7th in Bloomberg Businessweek entitled “Hedge Funds Rush Into Debt Trading With $108B as Banks Trim Risk”, written by Lisa Abramowicz, Miles Weiss, and Christine Harper. We recommend it highly. More Headaches for Swap Dealers The Business Conduct Standards rules, which went into effect May 1, mark a major step forward in realizing the Dodd-Frank Act. But they are likely to cause Swap Dealers major headaches. Dodd-Frank’s Third Anniversary: The IT Journey To Date The Dodd-Frank Act, which turns three in July, has created more questions for IT departments than it has answered. EMIR for corporates Herbert Smith has a nice summary here (HT the OTC space). What I for one had not realized is that from September 2013, EU parties with more than 500 trades, of whatever status, must establish procedures for Portfolio Reconciliation and they must at least semi-annually consider Portfolio Compression and provide valid explanations if they choose not to engage in it. The jury’s out on whether Dodd-Frank will save capitalism It’s been five years since the onset of the financial crisis — the rescue of Bear Stearns in March 2008 — and we still don’t know whether the financial system is safe. SIX Securities Services: collateral management at risk of becoming a commodity 75% of financial institutions believe collateral management has become, or is at risk of becoming, a commodity The NY Fed looks at collateral fire sales and tri-party repo: some good ideas, some well…. The Fed NY report “The Risk of Fire Sales in the Tri-Party Repo Market” (May 2013) by Brian Begalle, Antoine Martin, James McAndrews, and Susan McLaughlin certainly caught our eye. Not surprisingly, we have some observations. Fresh plans for OTC equity trades to go through clearing CLEARING houses are testing plans to allow more over-the-counter (OTC) equity trades to go through clearing, in a move that could cut settlement fees for banks and brokers. Litigators Must Love the CFTC The usual legal industry of lobbying, commenting, advising, etc. that the CFTC and SEC have created aside, it sure does seem like the CFTC is driving a fair amount of business for litigators these days. ISDA Publishes PB BC Allocation Protocol and Annex On 6 May 2013, ISDA published the Derivatives/FX Prime Brokerage Business Conduct Allocation Protocol to help prime brokers and executing dealers comply with the Dodd-Frank External Business Conduct Rules (“EBC”) which became effective on 1 May 2013. German Banking Industry Associations presents the clearing framework agreement (Clearing-Rahmenvereinbarung – CRV) for German banks and their buy-side customers Eurex Clearing welcomes approval of CRV/CRV can be used with the Eurex Clearing's Individual Segregation Model and EurexOTC Clear for Interest Rate Swaps Standardised OTC swaps spice up futurisation fight Last month saw the launch of a template for a new standardised interest rate swap product – an attempt to protect swap market liquidity from the threat of futurisation. The first product based on the template could be launched within weeks, but even some dealers are sceptical. Think locally, act locally: Anger over US plans for foreign banks The Federal Reserve is planning a radical departure from traditional supervision by requiring the local offshoots of foreign banks to meet US capital and liquidity rules. Overseas banks are furious – and regulators are backing them publicly, amid fears the policy could destroy global banking. Swap push-out reform bill passes committee despite Waters opposition HR 992 passes by 53 votes to six, despite protests by leading Democratic member on House Financial Services Committee Australian regulators unveil criteria for mandatory clearing Three regulators, including the RBA, reveal how they will decide whether and when to implement mandatory clearing requirements for OTC derivatives The defaulter does not pays without CVA The slogan ‘defaulter pays’ is often used of collateral and other credit support arrangements. It’s seductive: after all, shouldn’t the defaulter pay for the damage their default might do to another party?

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