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April 3, 2013

The week that was (issue of 2nd April 2013)

Dear all, ISDA publishes March 2013 Dodd-Frank Protocol The International Swaps and Derivatives Association (ISDA) has published the ISDA March 2013 Dodd-Frank Protocol (DF Protocol 2.0), which is intended to facilitate industry compliance with three final rulemakings by allowing market participants to supplement the terms of existing written agreements under which parties may execute swaps; or enter into an agreement to apply selected Dodd-Frank compliance provisions to their trading relationship in respect of swaps. http://www2.isda.org/functional-areas/protocol-management/protocol/12 Last week's highlights include:

  • Clarus FT has created a summary page of the available DTCC DDR information to show the daily traded cleared and uncleard trades/notionals in various asset classes: http://ddrviews.clarusft.com/
  • Thomas Book has been appointed CEO of Eurex
  • Aviva has cleared its first OTC IRS at CME Europe, also marking the successful entry of CME into the European OTC clearing market
  • You always wanted to look at a nifty regulatory timeline, across jurisdictions – then LCH can help: http://www.swapclear.com/knowledge/regulatory/timeline.html
  • ICE (with ICE Vault) and LSE (with UnaVista) join the trade repository fray
  • A whole host of articles looks at the question if SEFs in the US are already 'Dead on Arrival'

THE ARTICLES

EU Commission Reports on EMIR Treatment of Non-EU Central Banks and Debt Management Offices On 22 March 2013, the EU Commission published a report on the “International Treatment of Central Banks and Public Entities Managing Public Debt with regard to OTC Derivatives”. http://regulatoryreform.wordpress.com/2013/03/25/eu-commission-reports-on-emir-treatment-of-non-eu-central-banks-and-debt-management-offices/ It’s all about the decisions… It’s still Sunday, but I’ve finished my morning projects so I thought I’d take a quick break and grace you with a second post today before diving back into the mounds of paper staring at me. http://derivativesninja.com/wordpress/?p=294 Are banks at risk of missing regulatory deadlines? 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://www.finextra.com/Community/FullBlog.aspx?blogid=7499 TIME for an April Fool joke? If only…. It’s Easter Monday. Europe is closed. The US wishes it were.  Along comes this scary headline…which is even scarier because it’s from a column in TIME written by a contributor: Why Derivatives May Be the Biggest Risk for the Global Economy. http://isda.mediacomment.org/2013/04/01/time-for-an-april-fool-joke-if-only/ Swap regulations hold key to future of OTC algorithmic trading The arrival of central limit order books in the interest rate swap market has opened the door to algorithmic trading – but only a little. Its future depends on how the over-the-counter market evolves. By Peter Madigan http://www.risk.net/risk-magazine/feature/2255283/swap-regulations-hold-key-to-future-of-otc-algorithmic-trading Aviva clears first IRS through CME Clearing Europe The CME Group's European central counterparty has started clearing interest rate swaps in Europe, with a number of global banks successfully completing trades on the firm's platform. http://www.thetradenews.com/news/Asset_Classes/Derivatives/Aviva_clears_first_IRS_through_CME_Clearing_Europe.aspx Buyside left waiting for directions New derivatives trading rules will require faster and more secure collateral management processes for the buyside, but custodians’ solutions are not yet ready or affordable, according to fund managers. At least one large investment house is being forced to service clients’ collateral needs in-house. http://www.efinancialnews.com/story/2013-03-25/buyside-left-waiting-for-directions-on-otc-derivatives-clearing (subs) Potential impact of the U.S. Dodd-Frank Act and global OTC derivatives regulations In connection with any over-the-counter ("OTC") derivatives transactions you execute with U.S. entities and certain entities registered as "swap dealers" or "major swap participants," you may need to determine the potential impact of U.S. OTC derivatives regulation on your business and trading activities. The U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") is part of a global effort to meet commitments of the Group of Twenty Finance Ministers and Central Bank Governors ("G-20") on OTC derivatives regulation. It is important to review the potential impact of U.S. regulations under Dodd-Frank on your OTC derivatives transactions and how they may interact with OTC derivatives regulation being developed in your home jurisdiction and elsewhere in the world. http://www.lexology.com/library/detail.aspx?g=87a28fd2-c736-47ed-abe6-a03dee308196 Is it already time to weaken Dodd-Frank? One of the biggest problems with financial reform is having to discuss issues that most people find painfully boring. For instance, “derivatives.” http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/23/is-it-already-time-to-weaken-dodd-frank/ SEC's Walter urges "maximum" reliance on foreign swaps rules (Reuters) – The top securities regulator is urging international market regulators to find a compromise as they struggle to agree on how to apply new rules for cross border over-the-counter derivatives trades. http://www.reuters.com/article/2013/03/25/us-sec-swaps-cross-border-idUSBRE92O01X20130325 Nothing to Hide John and Sally like to trade with each other. They have conducted five derivatives trades. In three of the trades, John owes Sally $1 per trade. In the other two, Sally owes John $1 per trade. How much do John and Sally owe each other? http://isda.mediacomment.org/2013/03/25/nothing-to-hide/ CFTC ‘neglect’ of Sef rules angers platform providers After missing numerous deadlines to finalise the criteria for Sefs, the CFTC will not publish the rules until late April at the earliest, much to the frustration of market participants http://www.risk.net/risk-magazine/news/2257392/after-missing-numerous-deadlines-to-finalise-the-criteria-for-sefs-the-cftc-will-not-publish-the-rules-until-late-april-at-the-earliest-much-to-the-frustration-of-market-participants Sefs: Dead on arrival? Bloomberg is threatening to sue the US Commodity Futures Trading Commission over uneven margin rules that it fears will drive the market away from swaps and into new futures contracts http://www.risk.net/risk-magazine/feature/2257042/sefs-dead-on-arrival CFTC Shows Anticompetitive Behavior With Swap Margin Rules Another lawsuit may be headed the CFTC’s way over the implementation of Dodd-Frank rules, and the terror of administrative agencies, Eugene Scalia, may be filing it on behalf of Bloomberg. http://www.derivalert.org/blog/bid/87767/CFTC-Shows-Anticompetitive-Behavior-With-Swap-Margin-Rules Anxiety over IM proposals for Non-clearable Trades | ISDA Response ISDA through DerivatiViews piece play the same tune once again, as they express their anxiety as to the potential effects of the IM proposals to the general economy and argue that in an effort to enhance systemic resiliency by reducing counterparty risk, other risks may be introduced, such as liquidity and economic risk, that may make it harder to achieve a more resilient system. http://isda.derivativiews.org/2013/03/26/on-the-broken-record/ FIA Conference Part 2 – Challenging times for FCMs Mid-way through this year’s FIA conference, a panel of CEO’s were brought together to discuss some of the challenges facing FCMs. Recent years have brought these companies declining revenues, reduced trading volumes as well as a general lack of confidence in the sector following the demise of companies like MFG and PFG Best. The panel underlined some of the root causes of these issues, contemplated potential changes and looked at some silver linings among the aforementioned clouds. http://singledealerplatforms.org/2013/03/26/fia-conference-part-2-challenging-times-for-fcms/ Euromoney on derivatives end-users and extraterritoriality: worth a read An article in Euromoney, “Confusion clouds derivatives industry amid Dodd-Frank attack” is worth a read. http://www.secfinmonitor.com/sfm/euromoney-on-derivatives-end-users-and-extraterritoriality-worth-a-read/ LSEG furthers derivatives ambitions amidst trading slump The London Stock Exchange Group (LSEG) has announced plans to launch a swaps trade repository and taken another step towards its acquisition of LCH.Clearnet as plans to bolster its derivatives business progress. http://www.thetradenews.com/news/Regions/Europe/LSEG_furthers_derivatives_ambitions_amidst_trading_slump.aspx Competition hots up in EU derivatives market (Reuters) – Two U.S. operators are set to go head-to-head in the European Union to record derivatives trades, hoping to cash in on new rules to make markets safer and more transparent. http://uk.reuters.com/article/2013/03/28/eu-derivatives-idUKL5N0CK3T320130328 Review of the Basel Committee’s “Supervisory framework for measuring and controlling large exposures” The Basel Committee on Banking Supervision is looking to create global limits on bank exposures and has published a consultative document outlining their thoughts and asking for comments. The document is “Supervisory framework for measuring and controlling large exposures”. We provide a brief summary and highlights. http://www.secfinmonitor.com/sfm/review-of-the-basel-committees-supervisory-framework-for-measuring-and-controlling-large-exposures/ Late nights and illegality – but start of clearing in US goes well The days either side of the first US clearing deadline saw last-minute decisions by clients and regulators, operational niggles and some illegality. The industry expects breaches of the rules to get a pass for now, so the first phase of the new regime is being seen as a success. The second phase is already causing some angst, though. http://www.risk.net/risk-magazine/feature/2257058/late-nights-and-illegality-but-start-of-clearing-in-us-goes-well Steven Maijoor spoke at the EMIR conference in the Hague Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), spoke on "EMIR: A Fair Price for Safety and Transparency", at the EMIR conference in the Hague on 27 March 2013. http://www.esma.europa.eu/system/files/2013-428.pdf Oil Industry Avoids Swaps Rules Oil industry companies have largely managed to avoid the scrutiny of derivatives trading and registration as swap dealers, according to Reuters. In January of this year, the CFTC required that companies register as dealers if they trade more than $8 billion in swaps a year. http://www.cftclaw.com/2013/03/oil-industry-avoids-swaps-rules/ Lessons for securities lending and repo from OTC derivatives data repositories Two new data sources and one old one are now available for tracking OTC derivatives volumes, and smart people are already making widgets and tools for easy analysis. We think that this is what transparency will also mean under proposed data repository rules for securities lending and repo. The experience of OTC derivatives data repositories is worth noting for securities finance people thinking about these matters and how their businesses might be affected. http://www.secfinmonitor.com/sfm/lessons-for-securities-lending-and-repo-from-otc-derivatives-data-repositories/ Recommended reading: new BIS report on central banks and collateral We recommend that our readers be aware of a new Bank for International Settlements report, “Central bank collateral frameworks and practices,” released today. The summary data on how much collateral pledged to central banks is unique, to our reading. We think that the role of central banks in collateral acceptance is extremely important and were actually planning a report on the topic, but we may have to rethink that plan since the BIS just put out this study. The key findings of the report are below. http://www.secfinmonitor.com/sfm/recommended-reading-new-bis-report-on-central-banks-and-collateral/ Decision support in a cleared world In the bilateral OTC trading environment prevalent today, would a trader concern herself with margin costs when pricing the trade? It is unlikely. Assuming a trade is subject to an ISDA CSA with simple margining on the net mark-to-market, is it even possible to determine a margin cost, given that traders always hope to make profit rather than loss? It’s doubtful. http://www.ftseglobalmarkets.com/issues/issue-69-march-april-2013/decision-support-in-a-cleared-world.html Are we moving fast enough towards a global LEI? It remains to be seen whether the Legal Entity Identifier (LEI) will be implemented on a global level. Despite a renewed effort from regulators and industry bodies to form a single global system of LEIs, there appears to be an increasingly fragmented approach. Will we really see one standard LEI, or will we be left with a few competing initiatives? http://www.ftseglobalmarkets.com/issues/issue-69-march-april-2013/establishing-a-global-lei.html CFTC’s Division of Swap Dealer and Intermediary Oversight Issues Time-Limited No-Action Relief to Swap Dealers and Major Swap Participants Regarding Certain Recordkeeping Obligations http://www.cftc.gov/PressRoom/PressReleases/pr6552-13 Statement of Support by Chairman Gary Gensler: Clearing Exemption for Swaps Between Certain Affiliated Entities I support the final rule to exempt swaps between certain affiliated entities within a corporate group from the clearing requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act. http://www.cftc.gov/PressRoom/SpeechesTestimony/genslerstatement040113


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