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SEF ‘Packages’ Almost Wrapped Up

March 3, 2015, Markets Media

Institutional investors and large non-financial companies that trade swaps are rarely one-off users; rather, they’re in the market regularly as part of enterprise-wide hedging or speculative programs. To optimize efficiency, packaging trades into a single transaction can be indicated.

As swap execution facilities have developed since the industry’s Oct. 2013 start date, so-called package trades have been an area of uncertainty, as the phased approach implemented by regulators has meant that at times, certain swaps had to be traded on SEFs when others didn’t.

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U.K. Defeats ECB in Clash Over City of London Clearinghouses

By Stephanie Bodoni and Jim Brunsden
March 4, 2015, Bloomberg

Britain scored a rare victory in its bid to challenge European Union powers over the City of London as EU judges sided with the U.K. in a clash with the European Central Bank on clearinghouses.

The EU General Court in Luxembourg ruled Wednesday that the ECB lacks legal powers to dictate the location of the clearing of euro-denominated trades. It said the central bank would require a change in EU law to win those rights.

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Basel Finds Banks $341 Billion Short of Liquidity Rule

By Jim Brunsden
March 3, 2015, Bloomberg

Global banks are 305 billion euros ($341 billion) short of a target for easy-to-sell assets intended to prevent another financial crisis, according to the latest data from the Basel Committee on Banking Supervision.

The Basel rule, known as the liquidity coverage ratio, takes full effect in 2019. Had it been in full force on June 30, 2014, a fifth of the 210 monitored banks would have had a shortfall, the global regulator said in a report on Tuesday.

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Unclear Swaps Trading Unfeasible Under New Margin Proposals

By Gabriel Suprise
March 3, 2015, GlobalCapital

Proposals put forward by the Commodity Futures Trading Commission and a coalition of five US prudential regulators for uncleared swaps transactions will impose new margin requirements, collateral allocation restrictions and jurisdictional regulatory differences which could make trading uncleared swaps in the US a costly and potentially ineffective strategy. The new proposals could also drive business away from the US towards other jurisdictions such as Europe and other overseas markets.

“There should be, and there is, a substantial congruence between the European proposals and the US proposals,” James Schwartz, of counsel at Morrison Foerster in New York, toldGlobalCapital. “There are, however, distinctions between the US proposals and both the [Basel Committee on Banking Supervision/International Organization of Securities Commissions] Framework and the proposed EU margin rules, most significantly the fact that “materials swaps exposure” is defined as a much lower amount in the US proposals. To the extent that, as a result of that difference or others, the US rules are materially more stringent than those adopted elsewhere, one would expect entities with an opportunity to avoid dealing with the US rules to transact swaps with counterparties in other jurisdictions.”

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Analysis: Has LCH.Clearnet Saved Nasdaq NLX?

By Luke Jeffs and Cian Burke
March 3, 2015, FOW

Nasdaq NLX was tellingly the first exchange to welcome LCH.Clearnet's pledge it will finally support portfolio margining. 

The pledge by LCH.Clearnet's swaps clearing unit that it will offer an esoteric service called portfolio margining may have been a long-time coming but it couldn't have come soon enough for one European exchange. 

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FDIC Official Defends Bank Capital, Swaps Rule

By Andrew Ackerman
March 2, 2015, The Wall Street Journal

A top bank regulator dismissed a fellow policy maker’s calls to alter a new rule requiring that large banks hold extra capital, disagreeing with concerns the requirements may have the unintended effect of undermining the safety of the multitrillion-dollar swaps market.

Federal Deposit Insurance Corp. Vice Chairman Thomas Hoenig, whose agency helped put the rule in place, said he disagreed with recent comments by Commodity Futures Trading Commission Chairman Timothy Massad . Last month, Mr. Massad warned the rule may have unintentionally made it more expensive for banks to route swaps through clearinghouses. The 2010 Dodd-Frank financial law directs most swaps onto CFTC-regulated clearinghouses, which take fees to guarantee the trades and are designed to make the swaps market safer.

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Lawyers Wary of MiFID II as Deadline Passes

By Cian Burke
March 3, 2015, FOW

ESMA will submit regulatory technical standards to the commission in June. 

Top European lawyers have expressed ongoing concerns with the MiFID II proposals after the consultation period for the latest draft of the controversial trading reform closed last night.

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EU Court to Rule on U.K. Challenge to ECB's Clearing Policy

By Cecile Sourbes
March 2, 2015, Risk

Verdict due on March 4 in first of three UK complaints about eurozone clearing.

A three-year legal dispute between the UK government and the European Central Bank (ECB) over clearing house oversight is set to conclude on Wednesday, when the General Court of the European Union delivers its ruling.

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KVA: Banks Wrestle with the Cost of Capital

By Nazneen Sherif 
March 2, 2015, Risk

If the price of a derivative should reflect hedging and funding costs, it should also – probably – reflect capital consumption. The resulting adjustment, known as KVA, is gaining tentative acceptance, but the correct methodology is the subject of disputes.

In principle, derivatives pricing adjustments are simple, sensible things, and capital valuation adjustment (KVA) is no different. The newest addition to the family – known collectively as XVAs – reflects the capital a trade consumes over its lifetime, which is an obvious source of cost or benefit, and large dealers are increasingly incorporating it in their prices.

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Tullett’s Revenue Hit by Crackdown on Risky Trading

By Richa Naidu
March 3, 2015, Reuters

British interdealer broker Tullett Prebon Plc reported lower-than-expected full-year revenue, hurt by low interest rates and a regulatory crackdown on risky trading.

The company said it would not return to shareholders the $100 million settlement it received for the alleged poaching of its staff by U.S. rival BGC Partners.

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