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Swaptions Clearing Proves Tall Order

By Christopher Whittall
Published July 19, 2014 IFR

Efforts from central counterparties to expand the range of rates products they clear are stalling amid growing industry concern that it could be dangerous to shoehorn more exotic derivatives into clearing houses.

While CCPs may soon launch clearing of inflation swaps, bringing the far larger swaptions market into the fold is proving a much tougher nut to crack. This has led to a difference of opinion between the two largest interest rate swap CCPs regarding how soon the product can begin to be cleared.

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Futures Regulator O'Malia to Be Swaps Group Chief

By Scott Patterson
Published July 23, 2014 Wall Street Journal

A departing Republican futures regulator will take the helm of a major Wall Street trade group in August.

Republican Scott O'Malia of the Commodity Futures Trading Commission will become chief executive of the International Swaps and Derivatives Association Inc., a multinational group of institutions known for pushing back against federal regulation of swaps trading.

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Global Watchdogs Seek End to Tainted Benchmark Guessing-Game

By Jim Brunsden and Ben Moshinsky
Published July 22, 2014 Bloomberg

Global regulators set out plans to overhaul the way key financial benchmarks are calculated as they try to re-establish confidence in key market rates tarnished by manipulation scandals.

The Financial Stability Board said rates, particularly those such as Libor used to calculate interest rates, should be “to the greatest extent possible” based on actual trade data rather than employees’ estimates, according to a statement published on its website today. The FSB, which consists of regulators and central bankers from around the world, also called for the development of alternative benchmarks.

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Goldman to Sell Up to €10bn Bonds with New Swap

By Tracy Alloway and Michael Mackenzie
Published July 22, 2014 Financial Times

A type of derivative known as a “total return swap” has become a hot ticket item on Wall Street as investors seek out new ways of playing booming credit markets, while banks – including Goldman Sachs – find fresh methods to finance their assets.

Goldman is planning up to €10bn in sales of a controversial new type of bond that employs total return swaps, or TRS, at the same time that asset managers have been diving into the derivatives.

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Facing Up to the Financial Transaction Tax

By Elliott Holley
Published July 22, 2014 Banking Technology

A European financial transaction tax on equities and derivatives trades could be damaging for European liquidity levels and the City of London, but  it also looks set to impose serious operational challenges for banks, brokers and their buy-side clients following the failure of a UK appeal to the European Court of Justice earlier this year.

“Based on what we know of the FTT so far, there is a strong risk that this will hurt the market,” said Christian Voigt, business solutions architect at Fidessa. “The tax will impact those who trade a lot, such as liquidity providers. Market makers are needed to provide liquidity to the market in times of stress – but the FTT will discourage them from doing so at the very moment when the market needs liquidity the most.”

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CFTC’s Scott O’Malia to Resign From U.S. Swaps Regulator

By Silla Brush
Published July 21, 2014 Bloomberg

Scott O’Malia, a Republican who used his position on the Commodity Futures Trading Commission to criticize some of the agency’s efforts to rein in the $700 trillion global swaps market, said he will resign next month.

O’Malia, 46, the longest-serving member of the current CFTC panel, will step down effective Aug. 8 after more than four years at the agency, he said in a letter released today.

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The Smart Way to Regulate Overseas Swaps Trading

By Timothy A. Karpoff
Published July 21, 2014 American Banker

The U.S. and Europe have overhauled their approach to regulating swaps over the past five years, generally moving in the same direction and at similar paces. But on key issues like trading, price discovery and market structure, the U.S. and Europe are out of sync—a situation that's been creating upheaval in the cross-border swaps businesses. 

The debate over how to apply U.S. swaps rules abroad has largely centered on the perceived riskiness of overseas trades. But most of the companies that are making the trades are already subject to risk management and capital requirements under both U.S. and European jurisdiction. Now the question is how the application of U.S. swaps rules abroad will impact market integrity and price formation in the derivatives market.

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Wall Street Adapts to New Regulatory Regime

By Victoria McGrane and Julie Steinberg
Published July 21, 2014 Wall Street Journal

Four years after the Dodd-Frank financial law became reality, Washington's regulatory machine is altering Wall Street in fundamental ways.

Banks are selling off profitable business lines, pulling back from the short-term funding market, cutting ties with businesses that could attract extra regulatory scrutiny, and building up defenses to help weather future crises. While profits are up as firms slash costs and reduce funds set aside to cover future losses, their traditional profit engine—trading—is showing signs of weakening as banks step away from some activity amid regulatory pressure.

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Intercontinental Exchange Starts Hunt for Interest Rates Chief

By Philip Stafford
Published July 21, 2014 Financial Times

Intercontinental Exchange is preparing to deepen its push into off-exchange derivatives markets in Europe, beginning with the search for a head of its interest rates business.

The US derivatives operator has appointed Heidrick & Struggles to lead the search, according to three people familiar with the talks. The recruitment company helped place Suneel Bakhshi as the chief executive of LCH.Clearnet earlier this year.

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CCP Switch Services Gain Traction

By Mike Kentz
Published July 21, 2014 IFR

Swaps brokers are looking to capitalise on growing market demand to reduce the margin costs associated with central clearing, by launching services that allow users to switch between derivatives clearing houses with greater ease. 

Tradition and GFI Group are both building out infrastructure to allow participants to seamlessly switch exposures across the two major swaps clearing houses, CME Group and LCH.Clearnet.

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