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Fresh Delay Will Push E.U.-U.S. CCP Row Into September

By Fiona Maxwell 
July 30, 2015, Risk

Decision had been expected in July; dealers sceptical new timeline will hold.

Dealers have been warned to expect a further delay to the authorisation of US clearing houses by European authorities.

In a letter sent to its members on July 24, the Futures Industry Association (FIA) said the update came following a meeting in Washington between Commodity Futures Trading Commission (CFTC) chairman Timothy Massad and a delegation from the European Parliament’s Economic and Monetary Affairs Committee (Econ). According to the letter, the chairman of Econ, Roberto Gualtieri, said the next opportunity for an agreement would be in mid-September at an EU-US meeting in Brussels.

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Dealers Fear Mix-and-Match Margining for Cross-Border Swaps

By Fiona Maxwell 
July 31, 2015, Risk

National conflicts in margin rules can only be fixed via mutual recognition.

Basic differences in national rules on bilateral swap margining could force firms engaging in cross-border derivatives trades to apply the more stringent jurisdiction's regulation, dealers and lawyers are warning. That would drag more counterparties and products into the scope of the regime, which applies clearing-style safeguards to non-cleared trades.

The solution is for jurisdictions to mutually recognise each other's rules, but market participants fear these decisions will not happen in time to avoid a painful process of modifying contracts to comply with the relevant regimes.

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House Ag Chairman: No CFTC Funding Without Reauthorization

By Peter Schroeder
July 29, 2015, The Hill

A House lawmaker said Wednesday that a key financial regulator’s funding should be frozen until legislation overseeing it is passed.

House Agriculture Committee Chairman Michael Conaway (R-Texas) said that until legislation reauthorizing the Commodity Futures Trading Commission (CFTC) is enacted, Congress should not approve any additional funding for the derivatives regulator.

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Comment: Post-Trade Realities Hit Home on the Buy-Side

By Virginie O'Shea
July 27, 2015, FOW

The ongoing global regulatory debate about the Tier-one asset management community’s systemic significance reflects the dramatic shift in attitude toward the buy-side over the last 24 months. Though it continues to be fiercely debated, the potential impact of a large asset manager’s failure on the financial markets is at the forefront of the regulatory crackdown on non-bank financial institutions. The buy-side community has already faced a gamut of new regulatory requirements, and it is confronted with the prospect of many more in the coming years. Buy-side-focused regulation may begin to rival that focused on the sell-side in five years if nonbank reform continues to be drafted at this pace.

All of these requirements have already impacted the buy-side’s middle- and back-office operations, and firms that put technology purchases on hold during the 2008 economic and market crisis are evaluating their internal technology environments. Systemic and operational risk concerns have also heightened these firms’ scrutiny of third-party outsourcing relationships, leading to an uptick in reconciliation processes and the introduction of additional reporting layers between firms and their service providers.

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Comment: A Shipping Disaster’s Lessons for Dodd-Frank

By Randall Kroszner
July 30, 2015, Financial Times

One hundred years ago this month , 2,500 passengers in a festive mood boarded the SS Eastland for a picnic cruise on Lake Michigan. Just as the ship was to leave its mooring in the Chicago river, the Eastland suddenly capsized and 841 passengers lost their lives — more than in the Titanic disaster.

The fate of the Eastland is one of America’s great unremembered tragedies, yet it carries important lessons for policymakers today, specifically about how a regulatory response to one disaster can unleash unintended consequences that could contribute to another. The fifth anniversary this month of the Dodd-Frank Act reforming financial regulation seems like a particularly good time to consider this.

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U.S. Exchanges Say Dodd-Frank Delays Drive Away Business

By Cara Salvatore
July 29, 2015, Law360

U.S. derivatives exchanges told a congressional committee Wednesday that they're losing business to their European counterparts because the implementation of the five-year-old Dodd-Frank Act has so far failed to match a G-20 push to align international financial regulations.

Speaking to the House Committee on Agriculture, which regulates derivatives, representatives from the Chicago Mercantile Exchange, New York Stock Exchange parent Intercontinental Exchange Inc. and others said they're facing headwinds because U.S. regulators responsible for implementing Dodd-Frank's mandates haven't worked in harmony with regulators from other areas.

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Regulation Is Creating ‘Fractured Markets’, Says ISDA

By Jon Watkins
July 30, 2015, The Trade

The leading voice in lobbying for improvements in OTC derivatives reforms has warned against new regulations resulting in fractured rules, markets and liquidity.

The International Swap and Derivatives Association’s chief executive, Scott O’Malia, has said that the Dodd-Frank rules implemented in the US have resulted in exposing end users to duplicative and sometimes inconsistent requirements. 

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Banks Pitch Swaps as Alternative to Buying Stock

By Juliet Chung and Katy Burne
July 29, 2015, The Wall Street Journal

Banks are nudging certain hedge-fund clients to use derivatives instead of actual stocks when placing some bets, an effort aimed at lessening the impact of new capital rules on the banks’ businesses.

The shift generally involves derivatives called total-return swaps that mimic the effects of owning a stock or other asset. In some instances, banks take less of a balance-sheet hit when they are hedging offsetting client positions targeting the same stock using total-return swaps than they would if the bets were made via securities.

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FCMs Try to ‘Off-Board’ Credit and Commodity Funds

By Peter Madigan
July 30, 2015, Risk

Four banks have shut down their swaps clearing business in the past two years, as they flee the associated capital burden. But there are other ways to limit the cost of the business – by getting rid of unwanted clients, for example. Credit and commodities traders are in the firing line

Some call it off-boarding. Others speak bluntly of ‘firing' unprofitable clients. The more diplomatic refer to "the new economics of clearing".

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BME to Offer Swaps Clearing Service for Small Spanish Banks

By Joe Rennison
July 30, 2015, Financial Times

BME, an exchange operator in Spain, is set to launch a new service aimed at helping small Spanish banks comply with new rules governing derivatives transactions, amid growing concern that some will be unable to comply.

BME has been granted permission by regulators to offer central clearing for interest rate swaps, which under rules to be introduced in Europe in 2016, will have to be cleared through a central counterparty, rather than traded bilaterally.

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