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CFTC Told EU Platforms Not to Seek Sef Equivalence

By Peter Madigan
Published April 17, 2014 Risk

In what looks like a case of crossed wires, the Commodity Futures Trading Commission (CFTC) told European trading platforms not to apply for its new, harmonised regulatory treatment – pending a revamp of the framework – even as the UK's Financial Conduct Authority (FCA) was working through the rules with London-based venues, according to industry sources.

As Risk reported yesterday, none of Europe's swap trading venues has applied to the CFTC for qualifying multilateral trading facility (QMTF) status, a designation unveiled by the CFTC in February as part of an accord with the European Commission. QMTFs would be open to US persons – market participants that are subject to US rules and would otherwise be allowed only to trade on US-regulated swap execution facilities (Sefs).

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MiFID Enters Level Two Following Parliament Approval

By John Bakie
Published April 16, 2014 The Trade

The European Parliament passed updated rules for the Markets in Financial Instruments Directive, dubbed MiFID II, last night.

Legislative approval of the new rules means the European Securities and Markets Authority (ESMA) can begin the process of consulting on how best to implement the measures proposed in the directive, officially called the level 2 phase of the legislation.

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SEF Rules Inhibit Cross-Border Trades

Published April 16, 2014 Markets Media

Recent regulatory rulings have resulted in a shift in trading in euro- and U.S. dollar-denominated interest rate swaps. The Commodity Futures Trading Commission, through its MAT (made-available-to-trade) determinations and its recent tightening up of rules regarding European MTFs (multilateral trading facilities), is causing overseas swap market participants to think twice about entering the murky water of SEFs.

The CFTC has clarified the conditions that EU-regulated multilateral trading facilities (MTFs), must fulfill in order be granted relief from SEF requirements for transactions involving U.S. persons. An MTF must report all swap transactions to a Commission-registered or provisionally-registered swap data repository as if it were a SEF, in compliance with parts 43 and 45 of the Commission’s Regulations. Qualifying MTFs must also submit monthly reports to CFTC staff summarizing levels of participation and volume by U.S. persons.

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Covered Bond Issuers Cheer EU Swaps Margin Relief

By Matt Cameron
Published April 16, 2014 Risk

Issuers of covered bonds have welcomed European proposals that would exempt them from the need to collateralise non-cleared swaps – a safe harbour that international regulators did not include in their own standards on bilateral margining that were finalised last year.

"This is a good thing for the industry. It acknowledges the special status of covered bonds and the problems pools have with posting collateral. So this proposal gives the market clarity and is a move in the right direction," says Ralf Grossman, head of covered bond origination at Societe Generale Corporate & Investment Banking in Frankfurt.

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Lawmakers Back High-Frequency Trade Curbs in EU Markets Law

By Jim Brunsden
Published April 15, 2014 Bloomberg

High-frequency traders in the European Union are set to face some of the toughest rules in the world, after legislators backed rules that they said would curb volatility and make markets safer.

The limits include standards meant to keep the price increment for securities from being too small, mandatory tests of trading algorithms and requirements that market makers provide liquidity for a set number of hours each day. The curbs are part of revamped EU markets legislation approved yesterday by the European Parliament voting in Strasbourg, France.

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Dealers Benefit from OTC Liquidity Split, Buy-Siders Claim

By Peter Madigan
Published April 16, 2014 Risk

Buy-side firms in the US claim dealers stand to benefit from the splitting of over-the-counter derivatives markets into two pools of participants – US persons and non-US persons – as a by-product of Dodd-Frank Act rules on clearing and trading. That could hold back the all-to-all OTC market that is envisaged in both US and European rules, the firms say, and their suspicions may be deepened by revelations from European trading platforms that dealers have urged them not to open their doors to US persons.

"This bifurcation preserves a critical role for the dealers in the global swaps market, and I think that is their key concern," says Michael O'Brien, director of global trading at US asset manager Eaton Vance. "What everyone is afraid of is that we are going to end up with two markets – one for European asset managers and one for US asset managers – and the banks will be the only intermediaries moving liquidity back and forth between the two."

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Banks Say Lehman Seeks Unfair Edge in 'Flip Clause' Fight

By Joseph Checkler
Published April 15, 2014 Wall Street Journal

The banks being sued by Lehman Brothers Holdings Inc. in a long-simmering derivatives fight say Lehman is seeking an "undue advantage" in the litigation by prohibiting the banks from seeking a dismissal without first receiving class-action status.

In a Monday filing with U.S. Bankruptcy Court in New York, lawyers for 77 banks and other entities said Lehman's bid to put the brakes on their bid to dismiss the lawsuit was unfair, and that receiving approval for class-action status should be a "secondary" matter.

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CFTC Upping Enforcement Effort, Warns Former Chief

By Alexander Osipovich
Published April 15, 2014 Energy Risk

David Meister developed a fearsome reputation among Wall Street banks during his three years at the US Commodity Futures Trading Commission (CFTC). As head of the CFTC's division of enforcement from November 2010 to October 2013, Meister spearheaded a number of high-profile enforcement actions. Among other things, he collected nearly $1.8 billion in penalties from five global financial institutions over their alleged manipulation of Libor, and sued powerful targets such as Jon Corzine, the former chief executive of MF Global, after the New York-based futures commission merchant (FCM) collapsed in 2011. Notably, Meister also served at the CFTC during a critical transition period, when the US Dodd-Frank Act greatly expanded the agency's powers, including its ability to enforce rules against manipulation and market abuse.

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Biggest Banks Face Tougher Basel Rule on Risk Concentration

By Jim Brunsden
Published April 15, 2014 Bloomberg

Banks identified as systemically important to the global economy face tighter rules on how much business they can do with each other as part of a push to limit the chance a single failure would drag down multiple lenders.

The Basel Committee on Banking Supervision published rules that from 2019 will cap one too-big-to-fail bank’s financial dealings with another at an amount no greater than 15 percent of its capital. The measures also refine an existing rule capping the amount of business that a bank can do with a single counterparty at no more than 25 percent of its capital.

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ICE to Clear European Sovereign CDS

By Christopher Whittall
Published April 14, 2014 IFR

The IntercontinentalExchange will begin clearing Western European sovereign credit default swaps later this month after receiving the green light from regulators.

Contracts referencing CDS on Italy – the most heavily traded European contracts – Ireland, Portugal and Spain will begin clearing on April 28. The exchange has not announced plans to clear CDS on Germany and France, the second and third most liquid European contracts.

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