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Swaptions Clearing Proves Tall Order

By Christopher Whittall
Published July 19, 2014 IFR

Efforts from central counterparties to expand the range of rates products they clear are stalling amid growing industry concern that it could be dangerous to shoehorn more exotic derivatives into clearing houses.

While CCPs may soon launch clearing of inflation swaps, bringing the far larger swaptions market into the fold is proving a much tougher nut to crack. This has led to a difference of opinion between the two largest interest rate swap CCPs regarding how soon the product can begin to be cleared.

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CCP Switch Services Gain Traction

By Mike Kentz
Published July 21, 2014 IFR

Swaps brokers are looking to capitalise on growing market demand to reduce the margin costs associated with central clearing, by launching services that allow users to switch between derivatives clearing houses with greater ease. 

Tradition and GFI Group are both building out infrastructure to allow participants to seamlessly switch exposures across the two major swaps clearing houses, CME Group and LCH.Clearnet.

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Q&A: Jeanmarie Davis, Federal Reserve Bank of New York, on CCP Oversight

By Peter Madigan
Published July 18, 2014 Risk

The Federal Reserve Bank of New York plays a key role in the supervision of clearing houses and other new swap market players. Peter Madigan speaks to Jeanmarie Davis, head of the agency's financial market infrastructure function, about the challenges involved

A visit to the Federal Reserve Bank of New York in lower Manhattan is an odd and slightly intimidating experience – as it should be, perhaps. Resembling an imposing, sandstone fortress from the outside, entering the building involves passing through airport-style security, complete with ID checks, scans and stony-faced guards, before emerging into the windowless and featureless grey corridors that are a hallmark of most US government buildings.

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ICE Pushes CFTC for Extension of Cross-Border Margin Offsets

By Jon Watkins
Published July 15, 2014 The Trade

The Commodity Futures Trading Commission (CFTC) is considering a request from ICE Clear Europe to allow non-clearing members to benefit from cross-border margin offsets.

A petition filed by ICE builds on an existing order allowing its European central counterparty (CCP) to offer portfolio margining to its clearing members.

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Open Access Brings New Clearing Efficiencies

Published July 14, 2014 The Trade

How will forthcoming clearing regulations spur competition in Europe?

New regulations will dramatically change the clearing landscape across Europe. The MiFID II requires central counterparties (CCPs) to clear derivatives trades for any venue across the continent, known as the open access rule. The overhaul is in line with increasing transparency and competition within the derivatives market.

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Smaller Clearing Houses Push for Third-Country Equivalence

By Viren Vaghela
Published July 8, 2014 Asia Risk

Just four months ago Asia's smaller clearing houses – those in China, India and Korea – were like a series of unfinished stadiums in the lead-up to hosting a major international sporting event with the participants fretting about the risk of injury caused by playing in an incomplete infrastructure.

Dealers at foreign banks were expressing concerns about systems and processes not meeting international standards, the capital costs being punitive and a lack of recognition from European and US regulators. But to their credit Asia's central counterparties (CCPs) have confounded the naysayers and are ready for mandated clearing.

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Questions Remain Over US CCP Liquidity Rules

By Joe Rennison
Published July 8, 2014 Risk

Markets regulators will not require CCPs to have contractual liquidity commitments - but Fed is said to retain concerns and CCPs need approval from both camps

Recent rulemakings from US markets regulators have eased fears that central counterparties (CCPs) would be prevented from counting US Treasury collateral towards their liquidity reserves, but the issue may not have been completely settled, with the Federal Reserve said to have continuing concerns that it could be impossible under some circumstances to immediately liquidate large amounts of securities. CME Group has been waiting since December for both groups of regulators to approve its amended liquidity plans.

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Citi Paper Warns Hedge Funds on Collateral Management and Rising Financing Costs

Published July 1, 2014 COOConnect

Hedge funds must optimise the way in which they manage their collateral following reforms of the over-the-counter (OTC) derivatives markets while the cost of financing is going to rise exponentially in light of Basel III capital requirements, a new study from Citi Prime Finance has said.

There is widespread speculation that a collateral shortfall could emerge as more OTC derivatives are increasingly cleared through central counterparty clearing houses (CCPs) as mandated under Dodd-Frank in the US and the European Market Infrastructure Regulation (EMIR).

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Banks Look to Pass CCP Investment Losses to Clients

By Cecile Sourbes
Published June 30, 2014 Risk

Banks are seeking to pass through central counterparty (CCP)-related operational and investment losses to end-users, according to derivatives lawyers.

"A number of banks clearing at LCH.Clearnet's SwapClear came to us as they wanted to know whether the legal documentation they have with their clients is sufficiently broad to capture this sort of event. There could be an argument that it was but, basically, what we are providing is standard wording to make it clear they can pass those losses on to their clients," says one London-based derivatives partner.

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First JSCC-Cleared Swap Trade in Run Up to Official Clearing Requirement

Published June 25, 2014 FTSE Global Markets

Although electronic trading of yen swaps is not expected to be mandated in Japan until September 2015, institutional investors are starting to get ready for the implementation of these rules. The first electronically-traded and JSCC-cleared yen swap transaction by a Japanese bank has been executed. Bank of Tokyo-Mitsubishi UFJ Limited traded with Deutsche Bank AG, and used the Tradeweb “intention to clear” facility to send the trade to the Japan Securities Clearing Corporation (JSCC) for clearing.

Tradeweb clearing functionality allows swaps traders to choose, before a trade is executed, the clearing house and clearing member they would like to use to clear their trades. After each transaction is completed, details will be sent in real time to the selected CCP for clearing. This streamlines the entire trade workflow by reducing risk and improving operational efficiency.

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