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May 6, 2013

The week that was (issue of 6.5.2013)

Dear all, Sapient as published its 2013 Glossary of Financial Terms – Stuck to find a definition of “altiplano” ? Look no further, 130+ pages of home grown definitions making you walk and talk like Jamie Dimon: http://bit.ly/11YaH6Q Last week's highlights include:

  • Craig Pirrong (streetwiseprofessor) looks at the sensibility of the clearing mandate and if current CCP scholary models actually are correctly reflecting a CCP's risk profile
  • The Bank of England has published two new financial stability papers dealing with central counterparties
  • Hedge Accounting for cleared trades will get some relief under a revised IFRS rule – hopefully…
  • A recent survey by Celent & Oliver Wyman highlights the upcoming changes in collateral management on the buy side
  • FOW features a comprehensive look at the future of SEFs: http://bit.ly/10cH1oa
  • Eurex Clearing has conducted its first successful default simulation in close collaboration with its registered customers

THE ARTICLES Fools Rush In: CCP Mandate Edition I was invited to participate in a panel on clearing at ISDA’s Annual General Meeting in Singapore, but unfortunately I had to decline on account of my teaching obligations. http://streetwiseprofessor.com/?p=7200 CCPs: Models and Reality Pre-Crisis, there was very little academic writing on clearing. Post-Crisis, with questions about the role of derivatives in creating systemic risk, and the mandating of clearing of derivatives as a means of mitigating this problem, this is changing. http://streetwiseprofessor.com/?p=7213 ISDA Publishes 2013 Operations Benchmarking Survey SINGAPORE, April 25, 2013 – The International Swaps and Derivatives Association, Inc. (ISDA) today released its 2013 Operations Benchmarking Survey at its 28th Annual General Meeting in Singapore. http://www.secfinmonitor.com/sfm/isda-publishes-2013-operations-benchmarking-survey/ Important conclusions from a Bank of England paper on CCPs and financial resources A new research report from the Bank of England has modeled out how CCP financial resources can affect their stability in times of stress. The conclusions have some important policy implications that could create new risk waterfall policies for CCPs and potentially change how banks account for Default Fund and Initial Margin collateral. http://www.secfinmonitor.com/sfm/important-conclusions-from-a-bank-of-england-paper-on-ccps-and-financial-resource/ BOE Says Clearinghouses Need Plans to Assign Losses in a Crisis Clearinghouses should have detailed explanations how they will assign losses to members in the event of a default that depletes the company’s emergency funds, according to a Bank of England paper on financial stability. http://www.bloomberg.com/news/2013-04-29/boe-says-clearinghouses-need-plans-to-assign-losses-in-a-crisis.html FSOC downplays collateral shortfall fears Fears of a collateral shortage resulting from global regulatory reforms are overstated, according to the Financial Stability Oversight Council, a body comprising the leading US financial regulators and central bankers. http://www.efinancialnews.com/story/2013-04-29/fsoc-no-collateral-cliff-overshadowing-market Hedge Accounting to be Lost on Novation to CCP? This is a link to a Risk article highlighting concerns within the market regarding the possibility that transactions cleared voluntarily would cease to benefit from hedge accounting rules under International Accounting Standards Board (IASB) proposals. http://regulatoryreform.wordpress.com/2013/04/29/hedge-accounting-to-be-lost-on-novation-to-ccp/ Opening Statement Commissioner Scott D. O’Malia, Chairman of the CFTC Technology Advisory Committee, Washington, DC http://www.cftc.gov/PressRoom/SpeechesTestimony/omaliastatement043013 CFTC struggles to keep pace with technology issues For years, the Commodity Futures Trading Commission has been working on a paper outlining how it should cope with the latest developments in the technological revolution transforming the investing landscape. http://www.washingtonpost.com/business/economy/cftc-struggles-to-keep-pace-with-technology-issues/2013/04/29/2b771224-b105-11e2-bbf2-a6f9e9d79e19_story.html Bloomberg suit over swaps rules piles pressure on CFTC Legal experts predicted last week that a new challenge to the proposed rules from US regulator the Commodity Futures Trading Commission could prove pivotal in determining the success of sweeping new reforms to the US derivatives market. http://www.efinancialnews.com/story/2013-04-29/bloomberg-suit-over-swaps-rules-piles-pressure-on-cftc Stop/start for Dodd-Frank’s swaps rules The Dodd-Frank Act, nearly three years old this summer, continues its slow, inexorable pace of implementation. http://regulation.fidessa.com/2013/04/29/stopstart-for-dodd-franks-swaps-rules/ A question of life and SEF There has been a lot of debate around the role of SEFs in the global derivatives market. Some commentators are even claiming that the whole concept is dead and buried before the rules have even been finalised. http://www.finextra.com/Community/FullBlog.aspx?blogid=7654 DERIVATIVES: Clients may be “left out in the cold” come clearing deadline Buyside investors who haven’t prepared themselves for central clearing of over-the-counter derivatives could find themselves left out in the cold as a US regulatory deadline swiftly approaches, market experts have warned. http://www.ifrasia.com/derivatives-clients-may-be-%E2%80%9Cleft-out-in-the-cold%E2%80%9D-come-clearing-deadline/21082699.article SIFMA OPS 2013: Record Everything. But Identify What? BOCA RATON, Fla. – If you want to peek into the future of regulation in the age of smart phones, social media and increasing forms of electronic communication, just watch how derivatives brokers figure out how to deal with making swaps transactions more “transparent.” http://www.securitiestechnologymonitor.com/news/sifma-ops-2013-record-everything-identify-what-31730-1.html CFTC Demands Banks Prove Dodd-Frank Act Swaps Compliance The U.S. Commodity Futures Trading Commission has given the world’s largest banks until May 3 to prove they are complying with a part of the Dodd-Frank Act. http://www.bloomberg.com/news/2013-04-30/cftc-demands-banks-prove-dodd-frank-act-swaps-compliance.html CME Group’s Duffy talks Dodd-Frank, Libor and Twitter SmartBrief caught up with CME Group Executive Chairman and President Terry Duffy this week on the sidelines of the Milken Institute Global Conference. http://smartblogs.com/finance/2013/05/01/cme-groups-duffy-talks-dodd-frank-libor-and-twitter/ U.S. Swap Dealers’ Overseas Branches Gain Exemptions in SEC Plan JPMorgan Chase & Co. (JPM), Goldman Sachs Group Inc. (GS) and other U.S. swap dealers would gain limits on the Dodd-Frank Act’s reach for overseas trades under a Securities and Exchange Commission proposal released today. http://www.bloomberg.com/news/2013-05-01/sec-weighs-cross-border-swap-rules-amid-calls-to-restrict-reach.html CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Letter Regarding the Obligation of Swap Dealers and Major Swap Participants to Provide Certain Disclosures for Certain Transactions Under Regulation 23.431 The relief provided in the no-action letter is applicable to certain transactions in foreign exchange swaps and foreign exchange forwards. http://www.cftc.gov/PressRoom/PressReleases/pr6578-13 Sigh of relief from Prime Brokers It came down to the wire, but sense seems to have prevailed, as the Commodity Futures Trading Commission (CFTC) has issued a time limited ‘No Action’ letter that exempts Prime Brokers and rolling spot trades * from certain aspects of Dodd-Frank rules. http://singledealerplatforms.org/2013/05/01/sigh-of-relief-from-prime-brokers/ Correction to yesterday’s post on rolling spot exemption According to Profit-Loss, the CFTC has explicitly told Profit & Loss that yesterday’s letter does not refer to the rolling spot question – bank lawyers are also telling their clients the same thing http://singledealerplatforms.org/2013/05/02/correction-to-yesterdays-post-on-rolling-spot-exemption/ More on why looking at derivatives notionals makes for great eye candy but not much else Back on March 20th we wrote a post about the problem of using gross notional when sizing the derivatives market. We said it made for great eye candy, but not much else. Well, it happened again http://www.secfinmonitor.com/sfm/more-on-why-looking-at-derivatives-notionals-makes-for-great-eye-candy-but-not-much-else/ CME Clearing Europe moves to support clients’ OTC clearing needs ahead of EMIR Even though the exact timeline for EMIR (European Market Infrastructure Regulation) has yet to be finalized, CME Clearing Europe is not resting on its laurels. http://www.hedgeweek.com/2013/05/02/183900/cme-clearing-europe-moves-support-clients%E2%80%99-otc-clearing-needs-ahead-emir SEC Proposes Rules for Cross-Border Security-Based Swap Activities Washington, D.C., May 1, 2013 — The Securities and Exchange Commission today voted unanimously to propose rules and interpretive guidance for parties to cross-border security-based swap transactions. http://www.sec.gov/news/press/2013/2013-77.htm SEC Approves Cross-border Swaps Rules This is a link to an article in the Wall Street Journal regarding the SEC’s approach to the regulation of cross-border derivatives transactions. http://regulatoryreform.wordpress.com/2013/05/02/sec-approves-cross-border-swaps-rules/ Three positive scenarios for securities finance in 2013 Looking at our crystal ball, we think we see some potentially good news for securities finance for the rest of 2013. Granted, some of this is avoiding potential disasters, but given the rough spell of the last five years, this too is welcome. Below we present three scenarios we see that could improve the fortunes of securities financing activities over the next six to eight months. http://www.secfinmonitor.com/sfm/three-positive-scenarios-for-securities-finance-in-2013/ Seeking relief from cost and regulatory pressures In today’s world of unrelenting regulatory growth accompanied by challenged revenues and margins, banks are caught in a catch-22: the need to maintain or even increase their spending on so-called change-the-bank projects (CTB), while being forced to reduce overall costs aggressively. http://www.capco.com/insights/capco-blog/seeking-relief-from-cost-and-regulatory-pressures Celent Study Q&A – Maximizing Collateral Advantage: A Buy side Survey of Business and Operational Strategies In Q&A with DerivSource Cubillas Ding, Research Director, Capital Markets & Risk, Celent – Oliver Wyman, shares the highlights of a recent survey among buy-side firms plan to maximize collateral management operations to meet new regulatory requirements and greater capital requirements that are transforming the OTC derivatives marketplace. http://www.derivsource.com/articles/celent-study-qa-%E2%80%93-maximizing-collateral-advantage-buy-side-survey-business-and-operational- SEFs and interest rate swaps: an evolution not a revolution As part of FOW's interest rates special Galen Stops examines the future role of SEFs amid delays in rulemaking, stringent margining requirements and innovation elsewhere. http://www.fow.com/Article/3197025/SEFs-and-interest-rate-swaps-an-evolution-not-a-revolution.html Bart Chilton to Propose Derivative Transaction Fee Bart Chilton, Commissioner of the Commodity Futures Trading Commission (CFTC), plans to propose a transaction fee for derivative markets to help fund his agency and tighten regulation. http://www.cftclaw.com/2013/05/bart-chilton-propose-derivative-transaction-fee/ Eurex Clearing successfully executes first default simulation with OTC IRS members' involvement Eurex Clearing conducted its first voluntary fire drill of the default management process with the support of multiple clearing members active in the OTC Interest Rate Swap (OTC IRS) business. http://www.eurexclearing.com/clearing-en/about-us/news/484760/ Banks Oppose CFTC Proposal for Strict Controls of Overseas Derivatives Wall street bankers and some of the top finance ministers in the world are engaged in an intense battle with the Commodity Futures Trading Commission, as they attempt to stop the agency from extending their regulatory powers abroad. http://www.cftclaw.com/2013/05/banks-oppose-cftc-proposal-strict-controls-overseas-derivatives/ Crossing the Line Question: What do the EC Commissioner for Internal Market and Services, finance ministers in Brazil, France, Germany, Italy, Japan, Russia, South Africa, Switzerland and the UK, and regulators and central bankers in Australia, Hong Kong and Singapore have in common? http://isda.mediacomment.org/2013/05/02/crossing-the-line/ SEC cross-border rules an improvement on CFTC proposals, say lawyers Narrower US person definition and substituted compliance proposal win praise from market participants http://www.risk.net/risk-magazine/news/2265545/sec-crossborder-rules-are-an-improvement-on-cftc-proposals-say-lawyers CFTC’s Division of Swap Dealer and Intermediary Oversight Issues Time-Limited No-Action Letter Providing Relief Surrounding Certain Foreign Exchange Transactions with a Settlement Cycle of No More than Seven Local Business Days http://www.cftc.gov/PressRoom/PressReleases/pr6580-13 FX prime brokers welcome CFTC relief CFTC provides last-minute relief for FX prime brokers, having listened to arguments that the market could be seriously impeded by business conduct rules http://www.risk.net/risk-magazine/news/2265913/fx-prime-brokers-welcome-cftc-relief ACCELUS SUMMIT: Former U.S. SEC chief Pitt warns against imposing regulations abroad, urges industry engagement The United States should recognize it can no longer impose its regulatory solutions on the rest of the world, former U.S. Securities and Exchange Commission head Harvey Pitt said on Thursday. http://blog.thomsonreuters.com/?p=21804 Isda AGM: Electronic trade confirms rising ahead of mandate Survey finds more eligible OTC trades being confirmed electronically, and fewer trades left unconfirmed http://www.risk.net/risk-magazine/news/2264223/isda-agm-electronic-trade-confirms-rising-ahead-of-mandate Isda AGM: Industry to address negative interest rates under CSA Industry group will launch a best practice document confirming that negative interest rates apply under CSA http://www.risk.net/risk-magazine/news/2264221/isda-agm-industry-to-address-negative-interest-rates-under-csa US funds fear inability to clear amortising swaps A prohibition on taking cross-border risk could force some category two participants to stop trading amortising swaps from June 10 http://www.risk.net/risk-magazine/news/2264890/us-funds-fear-inability-to-clear-amortising-swaps New Iosco chair launches cross-border taskforce Wearing two hats, Greg Medcraft is chairman of the Australian Securities and Investments Commission (Asic) and is also the newly elected chairman of the International Organization of Securities Commissions (Iosco). Speaking to Luke Clancy he lays out his priorities for both roles http://www.risk.net/risk-magazine/interview/2263995/new-iosco-chair-launches-crossborder-taskforce Banks fear loss of hedge accounting for CCP novations Trades cleared voluntarily would not be protected by hedge accounting under IASB proposals http://www.risk.net/risk-magazine/news/2264213/banks-fear-loss-of-hedge-accounting-for-ccp-novations China onshore OTC clearing postponed until 2014 OTC clearing onshore in China will be delayed until at least the end of 2013 or early 2014 according to an official at Shanghai Clearing House http://www.risk.net/asia-risk/news/2264279/china-onshore-otc-clearing-postponed-until-2014 Editorial: Clearing the way Banks have focused their attention on central clearing – but trade reporting could prove even more problematic http://www.risk.net/asia-risk/opinion/2265609/editorial-clearing-the-way Clearing chaos: US OTC industry braces for June deadline With March 11 receding from view, all eyes have turned to the second stage of the US clearing roll-out. No-one knows precisely how many derivatives users will be caught this time, but estimates go as high as 2,000, and dealers, clearing houses and middleware firms are already nervous. By Joe Rennison http://www.risk.net/risk-magazine/feature/2263001/clearing-chaos-us-otc-industry-braces-for-june-deadline


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