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CFTC to Test Role of Anonymity in SEF Order Book Flop

By Peter Madigan 
November 21, 2014, Risk

Buy-side firms say they are being discouraged from using some swap order books because their identity is disclosed post-trade – an old practice that regulators are poised to kill off. But opinions are split on whether that will kick-start order book trading. Peter Madigan reports.

An "old business practice that... will quickly go away" - that is the hope Vincent McGonagle, director of the division of market oversight at the Commodity Futures Trading Commission (CFTC), shared with attendees at an industry event in New York on November 12.

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CFTC Warns EU Rules May Force Tighter US Derivatives Regulation

By Philip Stafford
November 20, 2014, Financial Times

The US may be forced into tougher regulation on benchmarks as planned stringent European rules may shut out the region’s banks and asset managers from US markets, the head of the US derivatives regulator has warned.

Timothy Massad, chairman of the Commodity Futures Trading Commission, told US policy makers this week that there could be “adverse market consequences” from European Commission plans.

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Hedge Hunters Double Default-Swaps as Views Split: China Credit

By Justina Lee and Lilian Karunungan
November 20, 2014, Bloomberg

Global investors have doubled holdings of contracts insuring China’s sovereign debt as its companies raise funds abroad and views diverge on the economy.

The net notional amount of credit-default swaps protecting against non-payment by the government reached a record $15.7 billion on Nov. 7, up from $8.1 billion a year earlier, Depository Trust & Clearing Corp. data show. Chinese companies boosted overseas bond offerings 65 percent to $308 billion in 2014. Alibaba Group Holdings Ltd. raised $8 billion in Asia’s largest dollar debt sale.

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Regulation and Risk Drive Investment in Data Management Technologies

November 18, 2014, Funds Europe

Fragmented data management processes have become one of the most pressing concerns for financial firms, amid increased regulatory requirements and hefty penalties for related failings.

Together with risk management obligations, regulation is proving to be the driving force for investment in data management solutions, according to research by Aite Group, an independent research and advisory firm focused on the financial services industry.

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Vietnam Needs Benchmark to Kick-Start Onshore Rates Market

By Blake Evans-Pritchard
November 21, 2014, Risk

Government needs to establish local rates standard otherwise moves to establish a domestic derivative sector could be stymied, say global banks.

The lack of an open and transparent interest rate index for benchmarking is a major barrier to Vietnam's plans to create a domestic derivatives market, according to global players active in the local market.

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Now Federal Job-Killers Are Coming After Derivatives

By J. Christopher Giancarlo 
November 19, 2014, The Wall Street Journal

Nearly six years ago, in the aftermath of the 2008 financial crisis, a giant sign was hung from the rafters of the U.S. Chamber of Commerce building, which directly faces the White House. The sign was composed of one word: J-O-B-S. It was a reminder that, despite all the challenges the new Obama administration faced, the ultimate test by which it would be judged would be job creation. It was a statement that Americans—just as they always have been—were ready to work hard to bring the U.S. economy back from the brink, provided that barriers were not placed in their way.

The official U.S. unemployment rate has indeed fallen steadily during the past few years, but the economic recovery has created the fewest jobs relative to the previous employment peak of any prior recovery. The labor-force participation rate recently touched a 36-year low of 62.7%. The number of Americans not in the labor force set a record high of 92.6 million in September. Part-time work and long-term unemployment are still well above levels from before the financial crisis.

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CDS Transparency Could Benefit Market, Says IOSCO

By Stephanie Palmer
November 18, 2014, Asset Servicing Times

Mandatory post-trade transparency in the credit default swaps (CDS) market could benefit market participants and observers, according to a report by the International Organisation of Securities Commissions (IOSCO).

The report, titled Post-Trade Transparency in the Credit Default Swaps Market, analysed the potential impact of added transparency in the market, based on works from international standard-setting bodies and academic literature.

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CFTC Commissioner Calls for Foreign SEF Regime

November 20, 2014, The Trade

A top regulator at the US derivatives watchdog has called for the establishment of a foreign regime for the execution and clearing of off-exchange derivatives to mitigate the global market from fragmenting.

Mark Wetjen, a commissioner at the Commodity Futures Trading Commission (CFTC), became the latest high-profile regulator to criticise his agency’s swap trading rules which have resulted in foreign investors shying away from using US electronic venues known as swap execution facilities (SEFs).

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Does Regulation Lead to Fragmented OTC Derivatives Processing?

November 19, 2014, FTSE Global Markets

Derivatives connectivity and regulation specialist Message Automation Limited, has today highlighted major challenges in the industry, with regulatory change and new market practices leading to fragmentation of OTC derivatives processing and data inconsistency, resulting in  operational inefficiencies, increased risk and spiralling costs. 

Message Automation has been investigating the impact of these issues with buy and sell side firms across Europe, Asia and North America. It has found that  increased market complexity, including fragmentation of the processes together with stringent regulatory imperatives, means that many financial firms are having to rethink their operational strategies for OTC derivatives. Instead of harmonisation and risk reduction, the involvement of a growing number of new third parties including clearing houses, execution platforms and trade reporting repositories has actually made the processing and management of OTC derivatives even more difficult. 

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China Accounting Rules Hit Demand for Interest Rate Hedging

By Xiao Wang
November 20, 2014, Risk

Failure to apply hedge accounting means derivatives bring balance sheet volatility and consequently a lack of interest from firms.

The failure to recognise the risk mitigating nature of derivatives in Chinese accounting standards is deterring local market players from trading renminbi interest rate swaps (IRS), despite a series of moves by the People's Bank of China to liberalise interest rates and therefore make hedging more attractive.

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