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April 15, 2013

The week that was (issue of 15th April 2013)

Dear all,

The CFTC has done it again – CFTC Provides No-Action Relief from SDR Requirements to Swap Counterparties that are not an SD or MSP…Also, a European Cleared Derivatives Addendum has been finalised by ISDA and FOA to legally underpin clearing in Europe: http://regulatoryreform.wordpress.com/2013/04/10/docugeddon-averted-as-european-cleared-derivatives-addendum-finalised/Highlights of last week:

  • The European Association of CCP Clearing Houses (EACH) is now a not-for-profit association
  • The so-called clearing connectivity standard (CCS) has been developed by Sapient and ISDA to standardise reporting of payments to CCPs for swaps
  • An interesting 1-month view of the effects of mandatory clearing in the US: from DerivSource
  • With the DFA and EMIR in full-blown implementation mode, now is the time to look at Basel III requirements, especially the CVA charge: at FOW
  • LCH SwapClear have updated their fee structure for self-clearers
  • According to CFTC commissioner O'Malia the US person exemptive order looks set to be extended until year-end to allow finalisation of definition

THE ARTICLES EU’s Barnier Said to Urge U.S.’s Lew to Rethink Finance Laws Michel Barnier, the European Union financial services chief, urged U.S. Treasury Secretary Jacob J. Lew to seek changes to draft rules on swaps and the treatment of EU bank units, saying they may undermine efforts to clinch a trade pact, said two people familiar with the talks. http://www.bloomberg.com/news/2013-04-08/eu-s-barnier-said-to-urge-u-s-s-lew-to-rethink-finance-laws.html EACH Adopts New Legal Structure To Strengthen Its Role As The Voice Of Europe’s CCPs The European Association of CCP Clearing Houses (EACH) was granted the status of a not- for-profit international association (AISBL), established under Belgian law, in late March 2013.  With this step, EACH has become the first legally registered representative organisation of clearing houses globally. EACH will be based in Brussels, in close proximityto political and regulatory decision makers.

Are Banks at Risk of Missing Regulatory Deadlines? (By Marc Murphy, not Tom) Attending a data management event last week in London, it suddenly dawned on me that banks are in real danger of missing regulatory deadlines for implementation of compliance initiatives to comply with FATCA, Dodd-Frank, EMIR and MiFID II. Not surprising given the convergence of implementation dates and deadlines that are taking place and the limited amount of time left to gain compliance. http://riskarticles.com/are-banks-at-risk-of-missing-regulatory-deadlines/ The New Fragmentation: Why Dodd-Frank Won’t Work As the regulatory regime around swaps seems to favour futurisation rather than SEFs, IDBs are rushing to set up futures exchanges, which may result in a similar type of market fragmentation that equity markets experienced thanks to Reg NMS and MiFID. http://tabbforum.com/opinions/the-new-fragmentation-why-dodd-frank-won't-work CFTC Finalizes Rule on Persons Associated with Swap Dealers The Commodity Futures Trading Commission (CFTC) announced today their plan to finalize regulations to clarify rules concerning persons associated with swap dealers. http://www.cftclaw.com/2013/04/cftc-finalizes-rule-persons-swap-dealers/ ASIC trade repository rules The Australian regulator, the Australian Securities and Investments Commission (ASIC), has published a consultation on draft rules and regulatory guidance to establish a trade repository regime implementing its G20 commitments. http://www.finextra.com/Community/FullBlog.aspx?blogid=7554 New swaps standard offers buy-side flexibility A new industry-led reporting and communication standard for OTC derivatives will give buy-side firms greater scope to automate regulatory-mandated reporting, including splitting margin payments to central counterparties (CCPs). http://www.thetradenews.com/news/Regions/Americas/New_swaps_standard_offers_buy-side_flexibility.aspx Nasdaq OMX to launch FX clearing in November Stockholm-based clearing house becomes the latest to announce its intention to enter the forex space http://www.risk.net/risk-magazine/news/2259713/nasdaq-omx-to-launch-fx-clearing-in-november Legal clouds hang over RWA-driven netting push New capital requirements are making it more difficult for banks to trade with counterparties that are not covered by a netting opinion. That is spurring attempts to expand coverage, but can leave banks and lawyers on uncertain ground. By Lukas Becker http://www.risk.net/risk-magazine/feature/2257761/legal-clouds-hang-over-rwadriven-netting-push Europe goes its own way on CVA European legislators have opted to exempt certain derivatives trades from the CVA capital charge under Basel III. But this decision puts Europe at odds with other countries that have implemented the Basel framework in its entirety. http://www.risk.net/risk-magazine/feature/2256979/europe-goes-its-own-way-on-cva Central banks weigh use of OTC clearing houses Survey finds nearly 40% of central banks are considering clearing their OTC derivatives http://www.risk.net/risk-magazine/news/2259986/central-banks-weigh-use-of-otc-clearing-houses Futurisation debate shifts to block trading rules Different block trading thresholds for economically equivalent swaps and futures could hand exchanges a decisive advantage in the ongoing futurisation fight. But some market participants argue the disparity is fair, as do some regulators. http://www.risk.net/risk-magazine/feature/2257576/futurisation-debate-shifts-to-block-trading-rules Dealing with CCP proliferation A variety of clearing houses are emerging in Asia – in some cases, backed by domestic clearing requirements for local currency derivatives. That poses some difficult questions for participants active across the region. Should they sign up to all of them or focus their operations on key Asian markets? http://www.risk.net/risk-magazine/feature/2258005/dealing-with-ccp-proliferation The struggle for consensus on European clearing addendum The move to central clearing poses a huge documentation challenge. A standard template has been developed for European derivatives users – but will this solve the problem? http://www.risk.net/risk-magazine/feature/2258889/the-struggle-for-consensus-on-european-clearing-addendum WGMR proposals raise procyclicality fears Proposals on the margining of uncleared over-the-counter derivatives trades have been revised to dampen the potential liquid impact. But dealers warn the rules are still dangerously pro-cyclical and will lead to huge numbers of disputes. http://www.risk.net/risk-magazine/feature/2257285/wgmr-proposals-raise-procyclicality-fears CFTC’s Division of Market Oversight Provides No-Action Relief from Swap Data Reporting Requirements to Swap Counterparties that are not Swap Dealers or Major Swap Participants Washington, DC – The Division of Market Oversight (DMO) of the Commodity Futures Trading Commission (CFTC) today announced the issuance of a no-action letter providing swap counterparties that are not swap dealers or major swap participants (“non-SD/MSP counterparties”), with certain relief from the reporting requirements of the CFTC’s swap data reporting rules, which are set forth at Parts 43, 45 and 46 of the CFTC’s regulations. http://www.cftc.gov/PressRoom/PressReleases/pr6563-13 http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/13-10.pdf Statement by Commissioner Scott O’Malia Staff No-Action Letters Regarding Data Reporting Rules (Parts 43, 45 & 46) [Scott takes aim at his own organisation and the poor state of reporting rules] http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement040913 US watchdog gives more time on swaps used to hedge (Reuters) – The top U.S. derivatives regulator granted manufacturers and other firms more time to start reporting swaps they do not use for speculative purposes, the latest in a raft of last-minute exemptions to new rules to make the swaps market less risky. http://uk.reuters.com/article/2013/04/09/derivatives-regulation-idUKL2N0CS24M20130409 Uh Oh: The Attempt to Regulate Swaps Is Failing It's hardly surprising to hear that some of the largest derivatives brokerages are looking to set up futures exchanges. A huge portion of the traditional business these brokers did is in the process of migrating out of swaps and into futures. http://www.cnbc.com/id/100620473 Regulation Reality: Category I Clearing Begins The first deadline for central clearing of certain swaps has passed but category II and III market participants must now gear up for their deadlines. Amy Young of State Street Global Services offers four areas of market change that industry participants should focus on as they assess their own infrastructure and readiness for CCP clearing. http://www.derivsource.com/content/regulation-reality-category-i-clearing-begins OTC Central Clearing: One Month In, What does the Data Show? Amir Khwaja, CEO of Clarus Financial Technology, analyses trade activity data prior to and post the March 11th Dodd-Frank Act mandatory clearing deadline. http://www.derivsource.com/content/otc-central-clearing-one-month-what-does-data-show Eurex – Focus on the buy side: "Improving our functionalities for your market needs" Beginning of November 2012 saw the successful launch of our EurexOTC Clear services for interest rate swaps. Since then, twelve Clearing Members and five Registered Customers have joined our unique clearing service. Starting in April, we introduce further functionalities to meet market demand and improve our service even more. http://www.eurexclearing.com/clearing-en/about-us/news/461408/ Clearing costs stack up for buyside Banks are in early-stage discussions around levying higher fees for providing clearing services to the hundreds of US investors that are due to begin centrally clearing derivatives in June. Dealers believe they will have to cover potential funding gaps related to clients’ swaps positions with their own cash, but expect to be paid for doing so. http://www.ifre.com/clearing-costs-stack-up-for-buyside/21078363.article CVA calculation proves a tricky business for banks Calculating CVA capital charges is likely to prove highly complex for banks and will have a significant impact on their P&L http://www.fow.com/Article/3184133/CVA-calculation-proves-a-tricky-business-for-banks.html Interview with ESMA Chair, Steven Maijoor Interview with ESMA Chair, Steven Maijoor on “Post-trade harmonisation and financial integration in Europe” on the occasion of the Joint European Central Bank (ECB)-EU Commission conference held on 19 March 2013. http://www.esma.europa.eu/news/Interview-ESMA-Chair-Steven-Maijoor Clearing Connectivity Standard (CCS) The Clearing Connectivity Standard (CCS) is an industry standard that helps improve over-the-counter (OTC) derivatives reporting and communication for asset managers, futures commission merchants (FCMs), central counterparties (CCPs) and custodians. To further the development of this work, ISDA will work with Sapient Global Markets, which initially developed the standard in collaboration with the largest custodian banks and leading FCMs, to provide program management, governance and industry oversight. http://www.fpml.org/samples/ccs.html “Docugeddon” Averted as European Cleared Derivatives Addendum Finalised? Risk Magazine is reporting that the International Swaps and Derivatives Association (“ISDA”) and the Futures and Options Association have finalised the long overdue standard “Client Cleared OTC Derivatives Addendum” (the “European Addendum”) designed to enable clearing members to sign up clients and so facilitate central clearing in Europe. http://regulatoryreform.wordpress.com/2013/04/10/docugeddon-averted-as-european-cleared-derivatives-addendum-finalised/ Buy Side Ramps Up for Clearing Buy side institutions are gearing up for mandatory clearing of OTC swaps, with legal documentation and operational issues looming large. http://marketsmedia.com/buy-side-ramps-up-for-clearing/ ICMA GMRA Legal opinions For many years, ICMA has obtained and annually updated legal opinions on the Global Master Repurchase Agreement (1995 & 2000 versions, as well as the 1995 version as amended by the Amendment Agreement to the 1995 version) from numerous jurisdictions worldwide. http://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/short-term-markets/Repo-Markets/GMRA-Legal-opinions/ Report to G20 Finance Ministers and Central Bank Governors on monitoring implementation of Basel III regulatory reform Full, timely and consistent implementation of Basel III remains fundamental to building a resilient financial system, maintaining public confidence in regulatory ratios and providing a level playing field for internationally active banks. http://www.bis.org/publ/bcbs249.htm CFTC Grants Order to ICE Clear Europe Permitting Portfolio Margining of Swaps and Security-Based Swaps in a Cleared Swaps Customer Account Washington, DC — The Commodity Futures Trading Commission issued an order granting a request made by ICE Clear Europe Limited (ICEU), a Commission-registered derivatives clearing organization (DCO), pursuant to Section 4d(f) of the Commodity Exchange Act (Act). http://www.cftc.gov/PressRoom/PressReleases/pr6566-13 Singapore positions itself as OTC clearing hub for Asia Clearing link with KRX will lead to larger volumes and efficiencies at SGX http://www.risk.net/asia-risk/news/2260463/singapore-positions-itself-as-otc-clearing-hub-for-asia Firms will be shut out of OTC market at June US clearing deadline FCMs do not have capacity to sign up all category 2 firms, market participants warn – and swap futures stand to benefit http://www.risk.net/risk-magazine/news/2260711/firms-will-be-shut-out-of-otc-market-at-june-us-clearing-deadline Op risk fears as OTC clearing gathers steam The OTC market's complex new structure will lead to operational glitches, conference participants warn http://www.risk.net/risk-magazine/news/2261271/op-risk-fears-as-otc-clearing-gathers-steam Futures will not beat swaps on margin alone, say buy-side firms Swap futures have a number of advantages, but OTC instruments will continue to be popular, leading buy-side firms say http://www.risk.net/risk-magazine/news/2261030/futures-will-not-beat-swaps-on-margin-alone-say-buyside-firms CFTC should extend US persons fix, says O'Malia Agency has not begun debating final definition of US person and "will need to provide relief" when temporary exemption expires, says CFTC commissioner http://www.risk.net/risk-magazine/news/2260799/cftc-should-extend-us-persons-fix-says-omalia Extraterritoriality agreement – maybe today, maybe tomorrow… Extraterritoriality agreements for cross-border OTC derivatives have been hotly debated for a while now, but there have been few visible signs of progress in recent months. http://regulation.fidessa.com/2013/04/12/extraterritoriality-agreement-maybe-today-maybe-tomorrow%E2%80%A6/ Barnier Says U.S. Financial Regulations Could Be ‘Damaging’ European Union Internal Market and Services Commissioner Michel Barnier said it would be “particularly damaging” if the U.S. pursued financial regulation in isolation. http://www.businessweek.com/news/2013-04-11/barnier-says-u-dot-s-dot-financial-regulations-could-be-damaging Remarks of Chairman Gary Gensler Before the U.S. Chamber of Commerce Seventh Annual Capital Markets Summit Good afternoon, thank you David for that kind introduction. I’d also like to thank the Chamber of Commerce for inviting me to speak at your annual Capital Markets Summit. I’m honored to be joining this summit for the fourth year in a row. http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-138


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