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Buy-Side Prepares for Non-Cleared Derivatives Margin Requirements

April 27, 2015, The Trade

If you thought that new transaction reporting requirements and a complete overhaul of exchange-traded derivatives operations were sufficiently arduous regulatory shifts then just wait until margining of non-cleared OTC derivatives arrives in September 2016 . Anywhere between $150 -$300 trillion in notional outstanding will need to be repapered, margined and collateralised. And that work hasn’t really started yet because the rules still have to be finalised.

The basic principles are relatively straightforward. In 2011, two years after Pittsburgh, the G20 also ordained OTC derivatives, which were not sufficiently standardised for CCP clearing, should be subject to bilateral margin requirements. In September 2013 this resulted in the Basel Committee on Banking Supervision and IOSCO publishing the framework for minimum standards on margin requirements for non-centrally cleared OTC derivatives. This framework was then refined into regulatory technical standards by ESMA and other supervisory authorities in Europe and the Commodity Futures Trading Commission (CFTC) and other prudential regulators in the US.

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Centralised Risk Raises Systemic Worries Over Derivatives

By Philip Stafford
April 28, 2015, Financial Times

Six years after the financial crisis exposed the systemic dangers of derivatives, the industry faces questions as to whether risk management systems will contain the next major bout of market turmoil.

On Tuesday FIA Global, the futures industry trade association, will add its voice to a growing debate about the role of clearing houses, the centralised risk managers charged with bolstering market stability. FIA will call for greater transparency and disclosure from clearers for banks and broker-dealers to help identify credit and operational risks.

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ESMA Adds Second-Level Reporting Validation

By Helen Bartholomew
April 27, 2015, IFR

The European Securities & Markets Authority has introduced an additional layer of validation requirements for registered trade repositories to ensure the completeness of data submitted on swap transactions under the European Markets Infrastructure Regulation.

As part of a newly published question and answer paper relating to implementation of EMIR, Europe’s key swaps market regulator confirmed a new two-step validation process to ensure reporting is performed according to the new regime and in line with rules set out in the technical standards.

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Banks Struggle to Make Strategy Calls as Rules Pile Up

By Duncan Wood
April 27, 2015, Risk

Isda AGM: Interaction between some rules “very, very convex”, says Deutsche exec.

Overlapping rules are making it difficult for banks to work out what businesses they want to be in, and how to price their products and services, dealers complained at last week’s annual meeting of the International Swaps and Derivatives Association. The new rules often interact, which can magnify or mitigate the impact of any action, they said.

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ICE Relaunches Credit Swap Futures

By Katy Burne
April 27, 2015, The Wall Street Journal

Proponents of futures contracts that mimic swaps are pushing the hybrid instruments, despite traders’ slower-than-expected acceptance, in a bet that a regulatory overhaul of complex financial instruments will boost the appeal of the “swap futures.”

Intercontinental Exchange Inc. has relaunched its credit swap futures two years after their debut flopped and prompted the Atlanta exchange operator to delist the contract in favor of redesigning it.

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SEC Takes Different Harmony Approach

By Mike Kentz
April 25, 2015, IFR

While the CFTC remains embroiled in tense negotiations with European regulators regarding the reach of Dodd-Frank derivatives rules outside the US, the SEC has remained above the fray by taking a starkly different approach to derivatives rulemaking.

The agency has moved considerably slower – it issued its first substantive Dodd-Frank rulemaking in January of this year, compared with the CFTC passing its first rules in 2011.

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End-Users Face Rising Swaps Costs

By Helen Bartholomew
April 25, 2015, IFR

Derivatives end-users may have won the battle in securing exemptions from many new rules forcing central clearing and exchange-like execution of swaps transactions, but they face reduced liquidity and rising costs as a result of this sweeping overhaul of the US$691trn over-the-counter derivatives markets, alongside new rules requiring banks to hold more capital against those trades.

“End-users don’t bring systemic risk and regulators need to be pragmatic about that,” said Derek West, senior director for derivatives at Canada’s key securities regulator, Autorite des Marches Financiers, speaking at ISDA’s AGM in Montreal.

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ISDA Urges Action on Global Harmony

By Helen Bartholomew
April 25, 2015, IFR

Derivatives professionals gathered in Montreal, Canada last week for ISDA’s 30th Annual General Meeting, where cross-border harmonisation topped the agenda amid myriad issues still weighing on the US$691trn over-the-counter swaps market.

Almost six years on from the G20 agreement struck in 2009 by global leaders in Pittsburgh, which sought to eliminate systemic risk by forcing swaps to be centrally cleared, reported to registered data repositories, and ultimately traded in an exchange-like electronic environment, industry participants have become frustrated with the lack of global consistency and the often haphazard outcomes that a fragmented approach has delivered.

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CCP Capital Rules Delayed

By Mike Kentz, David Wigan
April 25, 2015, IFR

The European Banking Committee voted on Friday to postpone new capital rules for clearing houses, amid speculation that negotiators will fail to resolve an impasse over US-based operators before a June 15 deadline.

The Committee provided for an extension to December 15 of implementation of Capital Requirements Directive IV (CRD IV) rules that would impose significantly higher charges on bank exposures to so-called “non-qualifying” central clearing counterparties.

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Nomura Reviews Viability of Swaps Clearing

By Joe Rennison
April 24, 2015, Risk

The bank may shutter its OTC clearing offering in the US and Europe following an internal review that is expected to be completed within weeks

Nomura is reviewing the viability of its over-the-counter client clearing business in the US and Europe, a spokesperson for the bank has confirmed. A final decision on whether to exit the business is expected within the next few weeks.

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