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Credit Swap Reform Focuses on Roll Dates

By Joe Rennison
June 29, 2015, Financial Times

A tentative agreement on overhauling the workings of credit derivatives on specific companies beckons as the market fights to halt a dramatic decline in volumes since the financial crisis.

On a conference call last week, around 20 asset managers, hedge fund managers and other traders of credit default swaps — which allow investors to bet on or hedge against a borrower defaulting — discussed ways to boost the market.

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Pick-and-Mix Rules Divide Exchanges

By James Rundle
June 29, 2015, Financial News

Clearing houses have emerged as an important component of the post-crash financial system. But a proposal to fundamentally change the way they interconnect has split the industry.

At their heart, clearing houses stand as middle agents between buyers and sellers of bonds, equities, derivatives or any other financial assets and step in to guarantee trades if one party cannot complete. Regulators globally have been pushing more markets to use clearing houses so the risks can be tracked and hopefully contained – unlike deals done privately, over the counter between banks.

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Derivatives ‘Not Untouchable’ for Bail-In, Warns SRB’s König

By Catherine Contiguglia and Cecile Sourbes 
June 29, 2015, Risk

Rating agencies “might be wrong” to see swaps as safer, says eurozone resolution chief.

The head of Europe’s resolution authority has warned market participants not to assume derivatives liabilities will get preferential treatment next time a big bank collapses – one of the central planks of a new derivatives assessment methodology published by Moody’s Investors Service in March.

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CFTC Casts Margin Net to Catch U.S. Banks' Affiliates

By Peter Madigan
June 30, 2015, Risk

Agency redefines ‘guarantee’, but lawyers caution it may not stick.

Foreign affiliates of US banks that dropped parental guarantees to avoid trading requirements of the Dodd-Frank Act would still be caught by new cross-border margin rules proposed on June 29 – one of a series of potentially divisive provisions in the draft rules. Lawyers are already challenging the ability of US regulators to regulate so-called non-guaranteed affiliates.

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U.S. Swaps Regulator CFTC To Close Cross-Border Loophole

By Douwe Miedema
June 29, 2015, Reuters

The U.S. derivatives market regulator on Monday proposed a rule for safety margins for uncleared swaps to close a loophole Wall Street banks have used to duck new trading provisions by shifting business abroad.

U.S. firms would have to comply with the regulation, which the Commodity Futures Trading Commission adopted unanimously, in most cases, even when doing business abroad.

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N.Y. Bank Watchdog Sinks Teeth Into Isdafix Rigging

By Gina Chon
June 28, 2015, Financial Times

New York’s banking regulator is probing an emerging benchmark trading scandal relating to the suspected manipulation of US interest rate swaps, according to people familiar with the matter.

The Department of Financial Services investigation into the so-called Isdafix benchmark is in its early stages and has not yet honed in on particular banks, the people said.

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Regulatory Impact on Swaps Minimal, Managers Say

By David Wigan
June 27, 2015, IFR

Soaring interest rate volatility led to a surge in hedging activity in recent weeks, providing the first clear picture of the impact of post-crisis regulation on investor demand for over-the-counter derivatives. And the apparent answer is that not much has changed.

With European and US bond yields soaring to their highest levels in eight months, fund manager appetite for swaps appeared to be undiminished, while futures activity remained flat.

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Credit Suisse Raises Swap Clearing Fees as Costs Bite

By David Wigan
June 27, 2015, IFR

Credit Suisse has joined a growing list of dealers to raise fees for clearing of over-the-counter derivatives, as the bank moved to offset rising regulatory costs associated with the business.

The Swiss bank increased fees for some clients, according to sources, reflecting a broader trend of rising charges, which dealers claim are well below the level required to hit return on equity targets. Credit Suisse is the leading clearing broker in US OTC markets, according to CFTC data.

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Buy-Side Facing Up to Derivatives Challenge

June 29, 2015, The Trade

The buy-side share of the derivatives business has grown to record levels over the last decade, as they use derivatives in significant volumes to hedge risks or tap hard-to-access investments. But will this work be curtailed due to the clutch of new market regulations on the horizon?

It is a tricky situation to be in. On the one hand, investors have been grappling with a low interest rate environment and derivatives are being used more than ever to tap into higher-yielding investment strategies and hedge risk. On the other hand, new regulations like the European market infrastructure regulation (EMIR), Solvency II, UCITS V and MiFID II are putting ever more stringent requirements on investors, making it more costly and more complicated to use derivatives. Many believe this could curtail buy-side use of derivatives in the future.

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Asifma: OTC Extraterritoriality to Boost Asia's Capital Markets

By Mark Austen
June 29, 2015, Risk

As part of Asia Risk's 20th anniversary Asifma CEO, Mark Austen, writes about how enforced Asia regulatory co-operation will have long-term benefits

The extraterritorial application of EU and US derivatives regulation, which was designed for a western crisis, exposed the adverse impacts that global reforms can have on nascent capital markets in Asia. There is now widespread recognition that conflicting and duplicative derivatives rules fragment markets, distort competition, and reduce financial market participants' abilities to operate across borders – much to the detriment of Asia-Pacific financial markets.

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