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Comment: Frenemies at the Gate

By Joe Channer
August 18, 2015, Banking Technology

The sector is not renowned as a home for co-operation: competition is intense, the stakes high, and individualism rewarded. Yet the industry has recently seen a marked increase in collaborative ventures. The post-crisis environment, with regulations driving transparency, is forcing firms to focus resource on areas where there is less competitive advantage, such as risk management or reporting. As a result, fierce rivals are beginning to buck the trend, putting aside their differences to mutualise solutions to problems regulatory, logistical and technical. Consortiums, industry groups and open source projects abound.

Only last month, 13 major banks announced joint backing for an effort to create a utility to reduce disputes over the margin used in swaps trading. This comes soon after the world’s largest swaps dealers began discussions on the creation of an open source model for calculating margin for bilateral derivatives deals. Both moves are a direct response to new rules requiring dealers to post more margin in order to mitigate counterparty risk.

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Massad Reinforces CFTC’s Push for Margining Uncleared Swaps

By Eugene Grygo
July 28, 2015, FTF News

CFTC Chairman Timothy Massad says he will push for new rules to cover margin collection for uncleared swaps, and changes for clearinghouses, swaps dealers, SEFs and swaps data repositories.

Five years after the onset of the Dodd-Frank Act (DFA), CFTC Chairman Timothy G. Massad outlined last week the regulator’s next phase in the DFA rule-making process, which will include margin collection for uncleared swaps, stress tests for clearinghouses, a new definition of a swaps dealer, SEF trading improvements, and cross-border harmony for swaps data repositories (SDRs).

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Comment: Securitization Is Still Running on the Spot

By Owen Sanderson
June 16, 2015, GlobalCapital

Since the crisis, the European securitization market has been pleading unfair treatment. Being tarred with the same brush as US subprime meant the product has had to fight against a huge tide of regulation — and it still hasn’t made much difference.

As the European market gathers for its annual Global ABS conference, the bugbears of the conference are eerily familiar.

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Futures Brokers Feel Strain from Low Interest Rates and Red Tape

By Gregory Meyer and Philip Stafford 
April 12, 2015, Financial Times

The ranks of futures brokers are shrinking at a quickening pace as low interest rates and new financial regulations put severe strain on the middlemen of the $27tn listed derivatives markets.

Data from the Commodity Futures Trading Commission, the US derivatives regulator, shows the number of registered brokers — known as futures commission merchants — stood at 74 at the end of February. That is down from 91 a year earlier, and 189 in February 2005, and the US trend of accelerating industry concentration is a proxy for the global market because most big futures brokers have operations spread across the world.

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Clearing Members Propose Concessions

By Mike Kentz
February 21, 2015, IFR

Derivatives bankers have offered a major concession to global regulators in an effort to save a business they believe is being threatened by Basel leverage ratio requirements.

Major bank executives offered, at a Basel-convened meeting in London two weeks ago, to give up the right to reinvest the collateral their clients post to back derivative transactions if it means regulators will relax leverage ratio requirements.

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Hit the Floor: Banks Fear Basel Curbs for Capital Models

By Fiona Maxwell
February 4, 2015, Risk

One way for regulators to exert some control over too-disparate capital numbers is to apply a system of floors. Rules are in the works, but the big question is where they will be struck and what the effect will be. Industry critics are already warning of dire consequences. 

There are not many ways in which internal models are like sports cars, but plans to impose a floor on modelled capital numbers has brought some parallels to light. In effect, the floor is like a speed limit – a bank can drive as slowly as it likes, but if its models suggest it can safely put its foot down, the limit takes effect. And if that limit is too low, of course, a bank may as well trade in the sports car for something that requires less maintenance.

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Comment: Regulators Right to Cut Biggest Banks Down to Size

By John Gapper
January 7, 2015, Financial Times

Goldman Sachs caused a bit of a stir this week by issuing an analysts’ report suggesting JPMorgan Chase might want to break itself up. I believe in the independence of investment bank research as much as the next person, but it is hard not to notice that the major beneficiary of such a step would be Goldman Sachs.

That is not to say it is a bad idea. In fact, it may be a very good idea, possibly for JPMorgan’s shareholders, and definitely for society as a whole. It also suggests that the world’s banking regulators are steadily coming around to the idea of dismantling the largest banks with their own tools rather than relying on governments to do the right thing. If so, jolly good luck to them.

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Banks Face Basel Clampdown on Risk-Model Variation

By Boris Groendahl and Rebecca Christie
Published October 9, 2014 Bloomberg

Global regulators are preparing to narrow banks’ options for assessing credit risk in a bid to prevent the understatement of possible losses.

The Basel Committee on Banking Supervision will publish a report by early November on “excessive” variability in the models banks use to assign risk and measure capital needs, Secretary General Bill Coen said in an interview at the regulator’s headquarters in Basel, Switzerland. The document has been prepared for the Group of 20 nations.

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Barnier Hints at Longer Pensions Clearing Exemption

By Cecile Sourbes
Published September 12, 2014 Risk

The EC's head of internal markets, Michel Barnier, has hinted that the regulator will extend the pension funds derivatives clearing exemption beyond 2015

The European Commission's outgoing head of the internal market and services division, Michel Barnier, has hinted that the EC will extend the temporary exemption pension funds have from mandatory clearing of their over-the-counter derivatives trades beyond 2015.

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Banks Face More Oversight of Ability to Weather Credit Crunch

By Jesse Hamilton
Published September 3, 2014 Bloomberg

U.S. regulators, closing in on their mandate to force financial firms to prove they can weather another credit crisis, are set today to finish two key rules governing the banks’ balance sheets.

The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. are ready to issue a mandate that banks set aside enough easy-to-sell assets to survive a 30-day liquidity drought and wrap up rules on how much loss-absorbing capital must be held against total assets.

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