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Buy-Side Prepares for Non-Cleared Derivatives Margin Requirements

April 27, 2015, The Trade

If you thought that new transaction reporting requirements and a complete overhaul of exchange-traded derivatives operations were sufficiently arduous regulatory shifts then just wait until margining of non-cleared OTC derivatives arrives in September 2016 . Anywhere between $150 -$300 trillion in notional outstanding will need to be repapered, margined and collateralised. And that work hasn’t really started yet because the rules still have to be finalised.

The basic principles are relatively straightforward. In 2011, two years after Pittsburgh, the G20 also ordained OTC derivatives, which were not sufficiently standardised for CCP clearing, should be subject to bilateral margin requirements. In September 2013 this resulted in the Basel Committee on Banking Supervision and IOSCO publishing the framework for minimum standards on margin requirements for non-centrally cleared OTC derivatives. This framework was then refined into regulatory technical standards by ESMA and other supervisory authorities in Europe and the Commodity Futures Trading Commission (CFTC) and other prudential regulators in the US.

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ISDA Urges Action on Global Harmony

By Helen Bartholomew
April 25, 2015, IFR

Derivatives professionals gathered in Montreal, Canada last week for ISDA’s 30th Annual General Meeting, where cross-border harmonisation topped the agenda amid myriad issues still weighing on the US$691trn over-the-counter swaps market.

Almost six years on from the G20 agreement struck in 2009 by global leaders in Pittsburgh, which sought to eliminate systemic risk by forcing swaps to be centrally cleared, reported to registered data repositories, and ultimately traded in an exchange-like electronic environment, industry participants have become frustrated with the lack of global consistency and the often haphazard outcomes that a fragmented approach has delivered.

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Swap Rule Harmonisation Tops the Debate

By Helen Bartholomew
April 21, 2015, IFR

Derivatives professionals gather in Montreal, Canada this week for ISDA’s 30th Annual General Meeting, where cross border harmonisation will top the agenda amid a myriad of issues still weighing on the US$691trn over-the-counter swaps market.

Almost six years on from the G20 agreement struck in 2009 by global leaders in Pittsburgh, which sought to eliminate systemic risk by forcing swaps to be centrally cleared, reported to registered data repositories, and ultimately traded in an exchange-like electronic environment, industry participants have become frustrated with the lack of global consistency and the often haphazard outcomes that a fragmented approach has delivered.

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Clearers Hit Back at European Plans

By Philip Stafford
April 20, 2015, Financial Times

A group of seven European derivatives exchanges operators have hit back at regulators’ plans to give investors greater choice to trading futures and options, saying law drafts underplay risks to financial stability.

The seven warned that advanced European plans to require derivatives clearing houses to link to each other — intended to stimulate competition and lower trading costs — pose a threat to market stability and customer protections, “especially in distressed conditions”.

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Derivatives Squabble Reaches Crunch Point

By James Rundle
April 20, 2015, Financial News

Tempers are beginning to fray in the derivatives industry. This month, the boss of one of the biggest US trading venues spoke publicly of the power of the US authorities to retaliate against European institutions, and the head of an international trade body made soothing noises about flexibility.

The tension has its origins in the G20 meeting in Pittsburgh in 2009 that agreed to reduce the risk of derivatives trading by making it more transparent. This was a sensible idea in principle, but in practice it is threatening to fracture a multi-trillion dollar global market, because devising the new rules was not done at global level.

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G20 Mulls Slow Progress on Trade Reporting

By David Wigan
April 18, 2015, Financial News

G20 finance ministers and central bank governors meeting in Washington DC last week discussed the slow progress in global implementation of derivatives trade reporting, amid concern that the initiative is failing to achieve its key aim of increasing transparency in the over-the-counter derivatives market.

Financial Stability Board chairman Mark Carney told G20 representatives meeting on Thursday and Friday that regulators must work harder to agree reporting standards, increase data sharing and remove legal barriers to reporting of counterparty identities, a major issue for jurisdictions such as Luxembourg and Switzerland

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Regulators Warn Over-the-Counter Derivatives Are Out of Control

By Jeremy Fleming
April 14, 2015, EurActiv

EU and US industry and regulatory figures have warned that the number and nature of repositories listing over-the-counter (OTC) derivatives trades is threatening to blind regulators to market risk.

OTC trading is done directly between two parties, without any supervision of a stock exchange, in contrast with exchange trading.

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Opposites Attract to Shake Up Derivatives Trading Model

By Tim Cave and James Rundle
April 13, 2015, Financial News

Two institutions that have historically operated at opposite ends of the financial spectrum have found common ground as post-crisis reform continues to blur traditional market boundaries.

Icap, the world’s largest interdealer broker, and Bats Chi-X Europe, the region’s largest stock exchange, have formed an alliance to help bring more transparent trading methods to a niche corner of the derivatives market.

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Trade Reporting: A Costly Exercise

April 8, 2015, Markets Media

Faced with a wave of trade reporting regulations, capital markets firms are questioning whether it’s worth it to continue to adjust internal infrastructures — particularly with the availability of new alternatives, such as outsourced trade reporting services.

A large bank that makes 500,000 trades per month can expect to spend about $30 million to build an initial reporting system, plus $18 million per year to maintain it (including operations, testing, technical, remediation and business analysis resource costs), according to a report by Sapient Global Markets. Additional system build-out costs for Tier 2 banks to address Emir and other G20 rulesets are estimated at $45 million.

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Australian Derivatives Shift to Centralised Clearing

By Naomi Rovnick and Philip Stafford
April 7, 2015, Financial Times

The derivatives market in Australia has experienced a pronounced shift towards centralised clearing, a central aim of regulators since the financial crisis.

The surge in derivatives volumes comes after the country introduced centralised clearing of over-the-counter (OTC) derivatives to comply with a G20 commitment to safeguard the vast off-exchange market.

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