Weekly Roundup | 15th September 2014
Selected Stories – Sol Steinberg
Welcome back. Here are some of the important issues we have been tracking for the past couple of weeks. Inquire with us if you have any questions or would like to discuss any of these issues.
Eris Exchange’s swaps futures hit new daily volume and open interest high
US futures exchange Eris Exchange announced that on September 5 its USD interest rate swap futures achieved a record daily volume of 21,014 contracts representing more than $2.1 billion in notional value. The previous daily volume record was 13,252 contracts, set on June 21 2013. Swaps futures are futures products that blend the capital efficiency of the futures market with some traits of swaps, such as longer durations. Eighty percent of the record volume on September 5 occurred in 10-year Eris Standards, and 16 percent in 5-year Eris Standards.
Banks say two-bank dominance of LCH.Clearnet raises systemic risk concerns
Some market participants say that a large majority of payments between LCH.Clearnet and clearing members are handled by just two banks, raising concentration risk issues. The banks say when a clearing member has to transfer payments such as initial or variation margins to LCH.Clearnet, 85 percent of the time those transfers are handled by either Citi or JPMorgan. The issue is a concern especially considering the short time limit –sometimes as little as one hour- that firms have to make payments. LCH.Clearnet denies that two firms have so large a role but would not provide further details.
Goldman predicts dollar-euro party by 2017
Goldman Sachs analysts predict that the value of the euro will steadily drop in relation to the dollar, with the two currencies achieving parity by the end of 2017. The last time the two currencies were equal to each other, was 2002, the year the euro entered circulation as a physical currency. With Treasuries currently having higher yields than much euro-zone debt, and US interest rates likely to be raised, the Goldman analysts expect “cyclical outperformance” by the U. S.
Swaps traders say proliferation of old trading models is limiting transparency
Some swaps traders are saying that the recently overhauled OTC swaps market is less transparent that expected because market participants are sticking to the more opaque trading patterns used prior to the advent of swaps execution facility (SEF) trading. Buy side firms’ preference for trading through a request-for-quote model instead of through a central limit order book (CLOB), and CLOB trading occurring mainly among dealers trading with each other has hindered market transparency, the traders say.
R. J. O’Brien selects Duco for hosted reconciliation
R.J. O’Brien & Associates, the oldest and largest independent futures brokerage and clearing firm in the U.S. has selected DucoCube for hosted global reconciliation. The firm has already begun rolling out the product globally and has seen significant efficiency improvements where it has been adopted. R.J. O’Brien is expanding its use to more product areas.
CFTC reportedly tells DOJ of criminal ISDAfix rate-fixing
The Commodity Futures Trading Commisison (CFTC) reportedly told the U.S. Justice Department that it has uncovered evidence of criminal rate-fixing of the ISDAfix benchmark, Bloomberg reported last week. The CFTC has been investigating possible manipulation of ISDAfix since November 2012, and has reportedly flagged results of that investigation to prosecutors. The CFTC can only enforce civil penalties not prosecute criminal cases. It was unclear who the CFTC suspects of breaking the law.
Eurex launches swaps futures based on Goldman’s patent
Eurex became the second major derivatives exchange (after CME) to launch swaps futures based on Goldman Sachs’ patents. The patents entitle Goldman Sachs to a share of the trading revenues of the contracts, which were first listed on Eurex September 1st. Under international property law, the U.S. patent would not apply in Europe but using it would enable Eurex to eventually offer the contracts in the U.S. Other European exchanges, including Nasdaq OMX’s NLX and the London Stock Exchange are reportedly looking into launching similar products. Swaps futures offer the capital efficiency of futures with some of the features associated with swaps.