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Regulation Around the Corner

By Paul Edmonsen
January 6, 2016, FT Adviser

In the coming year, the E.U. has major reforms approaching implementation, stemming from the frenetic activity that followed the financial crisis.

In the longer term, the pace and scale of E.U.-driven reforms will reduce – the number of new initiatives has been cut every year for the past five years. But 2016 will be a busy year for E.U. regulators.

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Exchanges Draw Battle Lines in Regulatory Crunch Year

By Dan Alderson
January 6, 2016, GlobalCapital

Volatility returned to financial markets in 2015, with the expectation of U.S. interest rate rise accompanying several months of Greek political stand-off and mounting concerns about a Chinese stockmarket crash.

Causes of volatility are likely to become only more frequent and pronounced this year. While this presents new challenges and opportunities for traders, exchange operators believe it puts a heavy focus on their businesses. 

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MiFID II Still Tops Regulatory Agenda

January 6, 2016, Markets Media

MiFID II remains the headline topic in regulation despite a possible delay in implementing the new rules covering European financial markets according to Jake Green, partner in the financial regulatory group within the corporate practice at law firm Ashurst in London.

Green told Markets Media: “Some buyside clients are holding back preparations while they wait for sellside solutions. Sellside preparations have ramped up and if anything the pace is increasing. There is no sense of a slowdown but there is a bit less panic.”

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Buy-Side Looking to Go It Alone

By Dan Barnes
January 4, 2016, The Trade

At the Futures Industry Association’s annual London event in June 2015, Mark Woodward, vice president for corporate development at clearing house ICE Clear Europe said, “We are seeing increased interest in direct clearing [from buy-side firms] as a consequence of [brokers’] increased costs and capital charges.”

With mandatory clearing of over-the-counter (OTC) derivatives trades expected to begin under the European Market Infrastructure Regulation (EMIR) in April 2016, getting clearing arrangements addressed should be a top priority for asset managers.

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ESMA Industry Responses Expose Deep Divisions Over Indirect Clearing

By James Rundle
December 22, 2015, Financial News

Indirect clearing allows firms access to central counterparty clearing houses, or CCPs, without having to go through the expense and rigour of membership, by piggybacking off another firm’s membership.

Exactly how this would play out in practice remains deeply contentious. A consultation from the European Securities and Markets Authority, which ran from November 5 to December 17, has shown that an impasse exists over several key areas, not least of which is what happens when an indirect clearing client defaults. Some believe that managing the positions should fall to the clearing member to manage; others believe it should bypass them and go directly to the clearing house itself via a system of “leapfrog payments”.

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Comment: Surprise Answer to Regulatory Squeeze: Use More Swaps

By Rob Mannix
December 21, 2015, Risk

Prime brokers are looking to grow, even though a year ago many were downbeat about prospects for the sector. At that time, the industry expected Basel III and particularly the leverage ratio to cause rate hikes for financing that would hurt hedge fund clients badly.

As reported by Risk.net in December, that fear has proved justified for some funds, but not for everyone. Credit strategies have suffered but other funds less so.

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ESMA Margin Proposal Opens Door for U.S. Equivalence

By Helen Bartholomew
December 19, 2015, IFR

The European Securities and Markets Authority has proposed an amendment to regulatory technical standards under the European Markets Infrastructure Regulation that would open the door for the US clearing regime to be considered as equivalent.

In a consultation paper published today, ESMA has proposed a reduction in the margin period of risk for cleared derivatives transactions from two days to one day. If accepted by the European Union, it would mean that European clearing houses would calculate margin in a similar way to U.S. CCPs.

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IOSCO Lays Out OTC Derivative Harmonization Plans

By Charles Gubert
December 18, 2015, The Trade

Proposals to create a harmonised Unique Product Identifier (UPI), an alphanumeric code designed to help identify over-the-counter (OTC) derivative products, have been laid out by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).

The CPMI-IOSCO consultative report – Harmonization of the UPI – is seeking industry comments around the viability of a global UPI, which would assist financial regulators in their efforts to effectively monitor derivative transactions reported to trade repositories. The UPI would consist of a product classification system and associated code.

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Europe Cedes Ground in Clearing Battle with U.S.

By James Rundle
December 14, 2015, Financial News

Europe’s top markets regulator has launched a consultation over the way collateral is collected at clearing houses – a definitive step towards resolving a long-running disagreement over the way the E.U. and U.S. govern these institutions.

The European Securities and Markets Authority issued a consultation on December 14 on plans to allow collateral posted at E.U. clearing houses to cover a one-day period of risk. European clearing houses currently operate a two-day period of risk, which puts them at odds with their counterparts in the U.S.

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E.U. Reporting Permeates Regulatory Plans

By Mike Kentz
December 12, 2015, IFR

Momentum is building among global regulators to follow the lead of European authorities in implementing a more onerous regime for the reporting of derivatives transaction data, a framework that market participants once decried but failed to water down in the lobbying stage.

Executives at major global data repositories note that several Asian regulators have already developed frameworks that mirror dual-sided reporting requirements in Europe and some are looking to add requirements for collateral and valuations data originally pioneered in the E.U.

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