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The fight over who gets to be a swaps execution facility, or SEF, is shaping up to be one of the most contentious aspects for implementing the swaps portion of the new Wall Street reform law.
Federal Reserve Bank of Chicago President Charles Evans said that central clearinghouses for derivative trading could become failure risks.
EU proposals to move from bilateral to central clearing for over-the-counter (OTC) derivatives should include further investor protections, the Investment Management Association (IMA) has warned.
The Depository Trust & Clearing Corporation, the post-trade group that processes all exchange-traded shares in the US, is bolstering its presence in London as regulators push for more clearing in derivatives markets.
The OTC derivatives market is in a critical state of transition as regulators and other industry participants try to create a market structure that reduces systemic risks associated with this product.
Clearing houses cannot be supervised by European Union authorities because the EU does not have the financial resources to bail out a large clearing house that runs into difficulties, a report by the upper house of the British parliament said on Wednesday.
British lawmakers have backed preliminary European Union plans to crack down on derivatives markets but warned that supervision of clearing houses must remain under national control.
The European Commission (EC) has been granted observer status on the steering committee of an influential working group reviewing standards for financial market infrastructures, including central counterparties (CCPs) for over-the-counter derivatives.
In the war to rid the financial markets of the sort of unchecked risk that brought the global economy to its knees, regulators have taken aim at over-the-counter derivatives. But while lawmakers in the U.S. Senate debate key provisions of financial reform that will impact OTC derivatives regulation, major dealers and buy-side participants are proceeding with substantial technology changes in preparation for central clearing requirements.
The future shape of the derivatives markets, one of the big sources of revenue and profits for Wall Street banks, is still incredibly hard to map out.
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