The week that was (issue of 29 April 2013)
Dear all, Highlights from last week include:
- The ECB wants Euro-denominated derivatives trades being handled by clearing houses in the Eurozone; bye-bye Brittania?
- US regulators face high pressure from corporates and banks alike to exempt trades from being penalized by a CVA charge; similar to the exemption provided under CRD IV in Europe
- Extraterritorial cross-border alignment between regulators of different jurisdictions seems still waaaaay off
- Is the buy-side ready for clearing on 10 June 2013 in the U.S. or not? Different trade conferences have opposite answers…
- ISDA and SIFMA have developed an interest rate swap contract with preset terms
- The CVA exemption in CRD IV/CRR for non-financial end-users is final – or is it?
- The FTT is seen by market participants as a potential 'spoil-sport' for OTC clearing
THE ARTICLES ECB's Noyer ups pressure on London as Europe's finance hub (Reuters) – Trading of derivatives and other products denominated in euros in the financial markets should be backed up by support systems – such as clearing houses – based in euro zone countries, a senior French policymaker said on Monday. http://www.reuters.com/article/2013/04/22/g20-derivatives-idUSL5N0D91LV20130422 Pressure grows for US to copy EU’s CVA exemption Bill calls for FSOC to analyse impact on US of EU exemption as corporates press for a carve-out http://www.risk.net/risk-magazine/news/2262510/pressure-grows-for-us-to-copy-eu-s-cva-exemption EU Parliament Adopts CRD IV Following the conclusion of trialogue negotiations between the EU Parliament, EU Council and EU Commission in March over the implementation of Basel III in the EU, on 16 April 2013 the Parliament issued a press release announcing the adoption of the legislative package known as CRD IV, which will implement Basel III within the EU. http://regulatoryreform.wordpress.com/2013/04/19/eu-parliament-adopts-crd-iv/ EU Swaps-Clearing Clash European Union (EU) delegates are unable to settle a dispute between Germany and the U.K. regarding derivatives-clearing competition, requiring the discussion to begin again on draft legislation. Ireland, which holds the EU’s rotating presidency, is looking to find middle ground on the initiative, which would create position limits in commodity derivatives and increase supervision of high-frequency trading. http://www.cftclaw.com/2013/04/eu-swapsclearing-clash/ Regulators arguing over jurisdiction suggests something isn’t right We’ve noticed multiple arguments lately about extraterritoriality in financial regulations – yesterday’s press had a handful of notable stories with the same theme. When regulators are arguing with other regulators about the breadth of their activities, you know something is amiss. http://www.secfinmonitor.com/sfm/regulators-arguing-over-jurisdiction-suggests-something-isnt-right/ Regulators Look to Up Their Game Over Cross-Border Regulation On 19 April 2013, HM Treasury published a letter signed by the finance ministers of Brazil, France, Germany, Japan, Russia, South Africa, Switzerland, the UK and the EU Commission outlining concerns over the lack of progress in developing workable cross-border rules in relation to OTC derivatives market. http://regulatoryreform.wordpress.com/2013/04/22/regulators-look-to-up-their-game-over-cross-border-regulation/ Who Are the Swap Dealers? The latest official count of registered swap dealers seems rather low. TABB Group breaks down the list. http://tabbforum.com/opinions/who-are-the-swap-dealers http://www.cmegroup.com/education/files/tabb-dealers-2013-04-19.pdf Getting Down to the Cross-Border Nitty-Gritty in Derivatives Perhaps the most difficult part of derivatives reform is coordinating the world’s regulators as they wrestle with clearing, trading and reporting rules. But no matter how hard the regulators try to prevent it, some regulatory arbitrage appears certain. http://tabbforum.com/opinions/getting-down-to-the-cross-border-nitty-gritty-in-derivatives Bloomberg sues the CFTC over IM rules on swap futures. Will IM preferences in swap futures disadvantage SEFs? The controversy over IM on swap futures versus cleared swaps has made its way into the courts. According to an article in Bloomberg News dated April 16th, Bloomberg LP claimed “…The Commodity Futures Trading Commission, which by law is required to evaluate the costs and benefits of proposed regulations ‘offered only a fleeting, bare-bones discussion of economic effects that contained no financial or quantitative estimates’”. http://www.secfinmonitor.com/sfm/bloomberg-sues-cftc-over-im-rules-on-swaps-futures-will-collateral-differences-favor-swap-futures-over-cleared-swaps/ Tucker Says Regulators Need Power to Take Over Clearinghouses Bank of England Deputy Governor Paul Tucker said regulators need legal powers to allow them to commandeer clearinghouses that are close to failure. http://www.bloomberg.com/news/2013-04-22/tucker-says-regulators-need-power-to-take-over-clearinghouses.html Buy Side Preps for SEFs Institutional investment managers may be more prepared for central clearing of derivatives than is commonly perceived. http://marketsmedia.com/buy-side-preps-for-sefs/ Buy-side ‘not ready for US swaps clearing deadline’ US regulators are pushing the buy-side to comply by 10 June with regulations covering the central clearing of swaps but neither the buy-side nor the rest of the industry are even close to ready, experts agreed at the TradeTech-London 2013 conference yesterday. http://www.thetradenews.com/news/Asset_Classes/Derivatives/Buy-side_%E2%80%98not_ready_for_US_swaps_clearing_deadline%E2%80%99.aspx Buyside attacks OTC clearing proposals Negotiations between the 300 US funds preparing to clear interest-rate and credit default swaps in June, as part of the second wave of the Dodd-Frank clearing mandate for over-the-counter derivatives, are growing increasingly contentious. Buyside firms are crying foul on an industry clearing document they perceive to be unfair, while dealers are refusing to budge on terms, and predicting that higher clearing fees are inevitable. http://www.ifre.com/buyside-attacks-otc-clearing-proposals/21080639.article CME applies for European trade repository licence US-based derivatives exchange CME Group is set to submit an application to the European Securities and Markets Authority (ESMA) in a bid to become a trade repository in Europe. http://www.thetradenews.com/news/Regions/Europe/CME_applies_for_European_trade_repository_licence.aspx New models beckon as reforms drive broker revenues down New rules on OTC derivatives will accelerate the shift of investment banks' fixed income, currencies and commodities (FICC) business to electronic trading over the next three years, a new report has found. http://www.thetradenews.com/news/Asset_Classes/Derivatives/New_models_beckon_as_reforms_drive_broker_revenues_down.aspx Swaps Committee Creates Standardized Interest-Rate Contract Users of over-the-counter derivatives may now use an interest-rate swap contract with preset terms as the industry lobby group seeks to standardize the $379 trillion market. http://www.businessweek.com/news/2013-04-23/swaps-committee-creates-standardized-interest-rate-contract And we thought the CVA risk capital charge exemption was safe….. If anyone ever cares in the future to write the history of the extension of financial regulation to the real economy – so clearly best selling material – it will I hope be remembered how much of a volte-face the EU policy makers performed. http://eactchairman.wordpress.com/2013/04/24/and-we-thought-the-cva-risk-capital-charge-exemption-was-safe/ OTC derivatives supplement Global consistency a pipe dream, as national regulators go their own way http://www.risk.net/risk-magazine/special/2258643/otc-derivatives-supplement Tradeweb European revenues rise on OTC migration gains Tradeweb, a global operator of bond and derivatives trading venues, benefited last year from market volatility and the continued migration of over-the-counter markets onto electronic platforms, as its European profits increased by a fifth. http://www.efinancialnews.com/story/2013-04-23/tradeweb-revenues-top-40m-in-europe DERIVATIVES: FTT could kill Europe's OTC market – ISDA panel The European Commission’s planned Financial Transaction Tax stands to kill the over-the-counter derivatives market in the region and could have far-reaching consequences across the rest of the financial markets, according to TJ Lim, global head of markets at UniCredit. http://www.ifrasia.com/derivatives-ftt-could-kill-europes-otc-market-isda-panel/21081789.article http://www.risk.net/asia-risk/news/2263737/isda-agm-clearing-will-magnify-european-ftt-warns-unicredits-lim Dealers slam uncleared swaps rules Derivatives professionals continued to rail against rules dictating the amount of margin firms will have to set aside against uncleared over-the-counter derivatives at the ISDA AGM in Singapore today, labelling the proposed measures an “overkill”. http://www.ifrasia.com/derivatives-dealers-slam-uncleared-swaps-rules/21081811.article Isda AGM: Uncleared margin rules create dangerous distortions, say panellists New margin rules for uncleared derivatives will distort behaviour and increase systemic risk, panellists say http://www.risk.net/risk-magazine/news/2263669/isda-agm-uncleared-margin-rules-create-dangerous-distortions-say-panellists Transparency rules may not prevent future crises – ISDA panel Leading derivatives experts have warned of the limits – and potential dangers – of current measures aimed at bolstering transparency in the over-the-counter swaps market, calling into question the effectiveness of one of the key planks of regulatory reforms aimed at averting a repeat of the 2008 global financial crisis. http://www.ifre.com/update-transparency-rules-may-not-prevent-future-crises-%2013-isda-panel/21081760.article Isda AGM: OTC trade reporting system in danger of fragmentation The large number of trade repositories planned globally will reduce the quality of data, panellists warn http://www.risk.net/asia-risk/news/2263612/isda-agm-otc-trade-reporting-system-in-danger-of-fragmentation Isda AGM: Dealers fear US-EU reporting clash Industry calls for common trade reporting rules http://www.risk.net/asia-risk/news/2263961/isda-agm-dealers-fear-useu-reporting-clash Isda AGM: Closer international co-ordination needed, says MAS’s Ng The potential for conflicting regulations could hamper cross-border trades, warns MAS official http://www.risk.net/risk-magazine/news/2263613/isda-agm-closer-international-coordination-needed-says-mas-s-ng Isda AGM: ‘Overlapping and contradictory’ global regulation will hamper real economy The cost of reducing systemic risk is too high for the real economy, says Isda deputy chief executive http://www.risk.net/asia-risk/news/2263951/isda-agm-overlapping-and-contradictory-global-regulation-will-hamper-real-economy Interview: CIBC's Rob Ferguson CIBC Mellon’s co-head of global securities lending Rob Ferguson talks quantitative easing and collateral upgrade trades with Luke Clancy, discusses the velocity of collateral and ponders the prospect of using central counterparties for securities lending http://www.risk.net/risk-magazine/interview/2263225/interview-cibcs-rob-ferguson Banks try to standardise Sef sign-up for clients With new rules set to increase use of trading platforms, a group of banks is trying to replace inefficient, manual approval processes with something quicker and easier. By Clive Davidson http://www.risk.net/risk-magazine/feature/2262934/banks-try-to-standardise-sef-signup-for-clients Rates face regulatory headwinds Rates divisions will experience the full force of the tsunami of regulation coming in as part of the G20’s post-crisis programme of financial reform. http://www.efinancialnews.com/story/2013-04-29/rates-face-regulatory-headwinds CLEARED SWAP PRICES VERSUS BI-LATERAL SWAP PRICES Last month, I posted a blog titled “Swaps, Actual Traded Prices and Size”. http://www.clarusft.com/clearedswapprices/?goback=%2Egde_3907992_member_235757151 ISDA: Be Ready for May 1 and Standard Swap Confirmation By May 1, all counterparties must have provided their registered swap dealers with legal classifications and representations to allow the swap dealers to comply with the CFTC’s External Business Conduct Rule (EBCR). http://dodd-frank.com/isda-be-ready-for-may-1-and-standard-swap-confirmation/ DERIVATIVES: Clients face swaps cut-off as protocol deadline approaches More than half of buyside participants transacting over-the-counter swaps with US dealers caught in the Dodd-Frank net could lose their derivatives trading capabilities in the coming week as the CFTC’s Business Conduct Standards requirements become a reality on May 1. http://www.ifrasia.com/derivatives-clients-face-swaps-cut-off-as-protocol-deadline-approaches/21081985.article US SEC to propose cross-border rules for security-based swaps (Reuters) – U.S. securities regulators plan to propose a long-awaited plan next week spelling out how new rules governing over-the-counter derivatives will apply to cross-border transactions. http://www.reuters.com/article/2013/04/26/sec-swaps-crossborder-idUSL2N0DD2WF20130426 Finding efficiencies in the promised land of cross-margining As part of our interest rates special Galen Stops looks at some of the predicted savings from cross-margining and the practical and regulatory challenges to achieving them. http://www.fow.com/Article/3196245/Finding-efficiencies-in-the-promised-land-of-cross-margining.html The FSB’s Report Card on Derivatives Reform The Financial Stability Board gives international regulators a barely passing grade on their progress implementing OTC derivatives reforms. Here’s why. http://tabbforum.com/opinions/the-fsb%27s-report-card-on-derivatives-reform DERIVATIVES: Too-big-to-fail risk shifts to CCPs – ISDA panel Central counterparty clearers stand to be the next “too-big-to-fail” institutions and could pose an acute threat to the financial system if regulators stall on plans to manage the potential failure of a clearing entity. http://www.ifrasia.com/derivatives-too-big-to-fail-risk-shifts-to-ccps-isda-panel/21081963.article Amending swaps rights “essential” for resolution regimes Derivatives users should be prepared to make amendments to one of their most-treasured legal rights to help in the fight to end too-big-to-fail, attendees at the International Swaps and Derivatives Association Annual General Meeting in Singapore heard today. http://www.ifre.com/derivatives-giving-up-swaps-rights-%E2%80%9Cessential%E2%80%9D-for-ending-too-big-to-fail/21081965.article Speech by Commissioner Scott D. O’Malia, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY Foreign Exchange Committee, Forum on the Dodd Frank Act and the Foreign Exchange Market http://www.cftc.gov/PressRoom/SpeechesTestimony/opaomalia-25 Managing Swap Portfolios Is About to Get Even More Complex Already complex, swap portfolio management will become less forgiving with the implementation of the next clearing mandate in June. Buy-side firms need new technology that can help them streamline the process of trade terminations, compactions, fund rebalances and back-loading. http://tabbforum.com/opinions/managing-swap-portfolios-is-about-to-get-even-more-complex