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Eurex and LCH.Clearnet Seek OK for Inflation Swaps

By Tom Osborn
Published August 19, 2014 Risk 

A new front is set to open in the swaps clearing battle between LCH.Clearnet and Eurex, with both central counterparties (CCPs) on track to launch clearing for inflation swaps early next year, pending regulatory approval. That will come as a relief to market participants that are already struggling with the increased capital and funding burdens the product attracts, and that would face extra margin costs if interest rate swaps were subject to a clearing mandate while often-offsetting inflation swaps remained in the non-cleared world.

Dan Maguire, London-based chief executive of LCH.Clearnet's SwapClear business, confirms the CCP is in the throes of getting regulatory approval to clear inflation swaps. It is understood the CCP hopes to begin clearing the products in the first quarter of next year, pending approval by the Prudential Regulation Authority (PRA) and a European college of regulators.

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EU Regulators Concerned by CFTC's Foreign CCP Rules

By Lukas Becker
Published May 23, 2014 Risk

European regulators are warning that planned US rules for foreign clearing houses that would bar them from accepting US clients could prevent US central counterparties (CCPs) being approved under Europe's own rules.

The prospect of an authorisation tug-of-war stems from the European Market Infrastructure Regulation (Emir), which states that a country's clearing regulation can only be deemed equivalent if it has a reciprocal regime for authorising European and other third-country clearers

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EC Tackling Final Questions on CCP Resolution

By Cecile Sourbes
Published May 20, 2014 Risk

Rules on the recovery and resolution of central counterparties (CCPs) are expected to take shape over the next couple of months, according to participants at a Brussels conference on financial reform yesterday – but key elements, including where to draw the line between recovery and resolution, still need to be settled. The regime will determine how catastrophic losses should be allocated among clearing house participants.

Two new regulatory documents are in the works. The first is a set of proposals from the European Commission on the rules that would apply if a piece of financial market infrastructure (FMI), including clearing houses, ran into trouble. 

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SwapClear Dealers Cede Control as CCP Seeks Emir Approval

By Tom Osborn
Published May 13, 2014 Risk

The dealers that founded SwapClear at the turn of the millennium have given up control of the interest rate swap clearing service, following lengthy discussions. The move is required by Europe's new clearing regime, which restricts the power of shareholders in a central counterparty (CCP), and could open the door to significant changes in the competitive landscape – making it more likely that dealers move their business to a rival service and providing cross-margining opportunities for planned new futures products.

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Buy Side Urged to Share Risk of CCP Collapse

By Joe Rennison
Published April 30, 2014 Risk

BlackRock and Citadel say buy-side firms should accept some degree of exposure in the event of losses overwhelming a central counterparty (CCP), to ensure all participants have an incentive to behave responsibly. That could include having their variation margin payments cut – one of a range of measures now being considered by regulators and CCPs as a way of recovering a clearing house if its other financial resources are wiped out.

"As a fiduciary, our job is to produce alpha for our clients and to protect their assets – but to this point, at the end of the day, every participant in this entire system needs to be incentivised to preserve its safety and liquidity. Everybody needs to be focused on that," said Jack Hattem, head of global interest rate derivatives strategies at BlackRock, who was part of a panel discussion this morning at Risk's OTC Derivatives Clearing Summit in New York. "That's the point. You don't want to create a centralised system that is designed to take risk levels lower and then encourage bad behaviour."

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BNP Paribas Unveils CCP Outsourcing Service

By Paloma Migone
Published April 24, 2014 The Trade

BNP Paribas Securities Services is offering to manage collateral and central security depository (CSD) connectivity for clearing houses, ahead of incoming OTC derivatives rules.

Julien Kasparian, head of UK sales and relationship management, banks and broker dealers, at BNP Paribas Securities Services, said he has had advanced discussions with central counterparties (CCPs) to absorb some of their collateral management responsibility.

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IB Head Raises CCP Capital Fears

By Christopher Whittall
Published April 9, 2014 IFR

Regulators should review the business model of clearing houses that handle over-the-counter derivatives to ensure they can withstand future crises, a senior investment banker said today.

Speaking at the ISDA Annual General Meeting in Munich, Jean Pierre Mustier – head of corporate and investment banking at UniCredit – said the G20 goal of shifting OTC derivatives into central counterparties to reduce systemic risk made a lot of sense.

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Asia Dealers Review CCP Risk Management Approaches

By Viren Vaghela
Published April 7, 2014 Asia Risk

Bank risk teams have been embarking on a whirlwind tour of Asian markets from Sydney to Tokyo to Delhi to conduct due diligence on Asia's seven clearing houses that are open for business.

"We have an internal team that looks at each central counterparty (CCP) membership that we have in place and for the new ones – they visit each CCP and examine the structure before we consider becoming a member," says Andrew Baker, head of derivative clearing sales Asia at HSBC in Hong Kong

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Banks Call for CCPs to Act on Compression

By Cecile Sourbes
Published March 28, 2014 Risk

Trade compression will become a key battleground in over-the-counter derivatives clearing, dealers predict, as central counterparties (CCPs) vie to ease the capital burden on their bank members. LCH.Clearnet's SwapClear was forced to shut its existing compression service for a large chunk of 2013, as it sought to comply with US clearing rules, but has since restarted itand on March 10 expanded the service in an attempt to make it more efficient. CME Group plans to launch a multilateral compression service later this year, and Eurex is also said to be working on compression-related offerings.

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Industry Seeks Urgent Clarification on Frontloading

By Paloma Migone
Published March 27, 2014 The Trade

Market participants are seeking answers from European regulators on a frontloading obligation for OTC derivatives after it was recently triggered by the approval of the first central counterparty (CCP).

In a joint letter to the European Securities and Markets Authority (ESMA) last week, the International Swaps and Derivatives Association (ISDA) and FIA Europe called for “swift action” on guidance for the industry on frontloading.

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