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Comment: What Happened to the Dream of Consistent Regulation?

By Owen Sanderson
July 23, 2015, GlobalCapital

After the financial crisis, regulators and politicians promised that really, this time, they meant it. The Basel Committee was to be obeyed; regulators would talk to each other, global firms would have a level playing field and standards would be raised.

But it didn’t happen. The derivatives industry has been grappling for years with the mutual incompatibility of the Dodd-Frank Act in the United States and EMIR in the European Union.

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Inflation Games

By Jon Watkins
July 16, 2015, The Trade

Regulators have had interest rate and credit default swaps in their sights ever since the financial crisis, and to an extent non-deliverable forwards. Inflation swaps though, have proved to be an afterthought when it comes to enforcing mandatory clearing.

Escaping the claws of regulatory reform for now, the bilaterally traded product will continue to exist in an uncleared market. However, other regulatory factors could begin to push the buy-side towards clearing the products despite having no obligation to do so.

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ISDA Releases European Clearing Classification Letter

By Cian Burke
July 14, 2015, FOW

Tool allows counterparties to notify each other of their clearing obligations. 

The International Swaps and Derivatives Association (Isda) published on Tuesday a new classification letter allowing trading firms to notify each other of their clering and regulatory obligations under the European Market Infrastructure Regulation (Emir).

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August Launch for GMEX Swap Future

By Helen Bartholomew  
July 7, 2015, IFR

Start-up exchange GMEX will launch its Constant Maturity Future for hedging and trading interest rate exposure on August 7, introducing the latest new derivatives product to target a shift towards centralised clearing.

The euro-denominated hybrid contract offers trading across the entire euro interest rate curve from two to 30 years and will be available for trading and clearing over the Eurex Exchange.

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The Data Deluge

July 2, 2015, Automated Trader

"It's like hell on earth data-wise," says Michael Atkin, a renowned data professional and managing director of the Enterprise Data Management (EDM) Council trade body, in reference to the fragmented nature of over-the-counter (OTC) derivatives and other global capital markets.

The rising demand for data is being driven by a whole raft of new post-crash regulations such as the US Dodd-Frank rules and European Market Infrastructure Regulation (EMIR). These mean that the sell and buy side must store, report, consolidate and use data - often on a real-time basis - as never before. Better data quality, standardised utility-like platforms, efficiency and control are all required in this new environment.

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Buy-Side Facing Up to Derivatives Challenge

June 29, 2015, The Trade

The buy-side share of the derivatives business has grown to record levels over the last decade, as they use derivatives in significant volumes to hedge risks or tap hard-to-access investments. But will this work be curtailed due to the clutch of new market regulations on the horizon?

It is a tricky situation to be in. On the one hand, investors have been grappling with a low interest rate environment and derivatives are being used more than ever to tap into higher-yielding investment strategies and hedge risk. On the other hand, new regulations like the European market infrastructure regulation (EMIR), Solvency II, UCITS V and MiFID II are putting ever more stringent requirements on investors, making it more costly and more complicated to use derivatives. Many believe this could curtail buy-side use of derivatives in the future.

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Asifma: OTC Extraterritoriality to Boost Asia's Capital Markets

By Mark Austen
June 29, 2015, Risk

As part of Asia Risk's 20th anniversary Asifma CEO, Mark Austen, writes about how enforced Asia regulatory co-operation will have long-term benefits

The extraterritorial application of EU and US derivatives regulation, which was designed for a western crisis, exposed the adverse impacts that global reforms can have on nascent capital markets in Asia. There is now widespread recognition that conflicting and duplicative derivatives rules fragment markets, distort competition, and reduce financial market participants' abilities to operate across borders – much to the detriment of Asia-Pacific financial markets.

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Keeping Transaction Reporting Up to Scratch: You Know It Makes Sense!

June 24, 2015, FTSE Global Markets

In late April another top firm was hit with a multi-million dollar fine. This time Bank of America Merrill Lynch was the recipient – for failing to report its transactions correctly. This follows a recent raft of other sophisticated Tier-1 institutions being subjected to heavy fines, as regulators continue to focus on what is actually being reported. One thing is for sure: Bank of America Merrill Lynch will certainly not be the last firm to suffer the same fate. In fact I suspect it’s the tip of the iceberg! So why does this keep this happening? Bill Blythe, Global Business Development Director, Gresham Computing goes in search of answers.

The introduction of the Markets in Financial Instruments Directive (MiFID) in 2007 was challenging for many institutions, having to report approximately 28 fields for ISIN, for Alternative Instrument Identifier (Aii) and some OTC instruments. That however only applied to financial services firms. With the newer regulations coming on stream, such as the European Market Infrastructure Regulation (EMIR) any firm – including corporations – need to report on as many as 90 separate fields for any derivatives transaction.

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A Silver Lining to the Compliance Cloud

By Chris Hall
June 25, 2015, The Trade

Politicians are often accused by practitioners of trying to close the stable door after the horse has bolted. Inevitably, many regulations address the problems that caused the last crisis, but the rules imposed on the financial markets since Lehman Brothers collapsed in 2008 are a pre-requisite to the prevention of future shocks. “Overall, the spirit of the rules is about restoring confidence,” says Walter Ferstand, compliance and regulatory expert, NICE Actimize, a specialist technology vendor.

In theory, greater price transparency – the aim of the reporting, clearing and trading reforms to the OTC derivatives markets, as well as several other post-crisis regulations – should encourage more frequent trading by a wider variety of actors, leading to greater liquidity and more effective risk transfer. But such is the range of abuses uncovered in the past seven years – from insider trading to benchmark manipulation and beyond – that the post-crisis regulatory environment also requires significant levels of monitoring by market participants, both to demonstrate compliance to regulators and to deliver best execution to clients. And in this new, more transparent, world, investment managers are taking an increasing share of responsibility. “The buy-side has realised they need direct access to trade monitoring tools, rather than relying on banks and brokers. They must also realise that compliance must be automated, not manual, and that lack of size is no longer an excuse for lower levels of compliance. Claiming you have little or no budget for compliance won’t fly with the regulator,” says Ferstand.

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Derivatives Clearing Diverts Capital from Long-Term Investing – PensionsEurope

By Jonathan Williams
June 24, 2015, IPE

Mandating central clearing of derivatives trades would only serve to increase profits for clearinghouses and could increase risk, PensionsEurope has warned. 

In a discussion paper on the Capital Markets Union (CMU), published to coincide with the industry group’s annual conference in Brussels, the association warned that a more coherent capital market could be undermined by regulatory requirements diverting funds away from investment opportunities.

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