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Derivatives Regulation Spat Nears Transatlantic Detente

By Barney Jopson and Philip Stafford
December 20, 2015, Financial Times

A transatlantic dispute that has left a glaring gap in global financial regulation is on course to be resolved in 2016 after the U.S. signalled it was ready to end years of bickering and strike a compromise with Europe.

The U.S. and European Union have been locked in a spat that has left them without common standards for the $553tn global derivatives market, a crucial piece of unfinished business mandated by world leaders after the last financial crisis.

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BIS Expects Growth in Central Clearing

December 7, 2015, Markets Media

The Bank for International Settlements said there is ample room for further expansion of central clearing as certain interest rate swaps will have to be cleared in Europe from next June.

A report from the BIS said there has been significant growth since the G20 leaders pushed for mandatory clearing of over-the-counter derivatives in 2009. Last year more than half of the notional amount outstanding of derivatives transactions was centrally cleared, almost twice the percentage in 2009.

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Comment: Don't Panic! Here's the EMIR Checklist

December 4, 2015, FOW

June 2016 should see the European Markets Infrastructure Regulation (EMIR) come into effect. For buy-side firms the rules have long been anticipated and discussed but there are still very significant decisions to be made. The rules represent Europe's take on obligations to clear and report over-the-counter (OTC) derivatives trades, decided in 2009 by the G20 countries.

With Japan and the U.S. having started clearing in 2012 and 2013, Europe is playing catch-up. Its highly democratic process of creating directives and regulations is not geared toward efficiency. In this instance the challenge has extended to international negotiation with overseas regulators. For investment managers, there are several issues which will require immediate action in order to ensure their migration into the new clearing regime in as smooth as possible, while any additional costs that the process incurs are controlled within reason.

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Loss of Termination Rights Near Buy-Side

By Mike Kentz
December 5, 2015, IFR

Regulatory efforts to rid derivative contracts of early termination clauses in the event of a bankruptcy are nearing the buyside, one year after asset managers raised hackles at the prospect of voluntarily renouncing the privileges associated with early termination rights.

ISDA is nearing the establishment of country-specific protocols that will place a permanent stay on existing provisions that allow banks and buyside firms to terminate derivative contracts prior to the commencement of bankruptcy proceedings.

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Basel Committee Readies Op Risk and FRTB Releases

By Michael Hagerty and Nazneen Sherif 
December 1, 2015, Risk

Supervisors on the Basel Committee on Banking Supervision are meeting in New York on December 1 and 2, where one of the most pressing items on their agenda will be the release of hotly anticipated revisions to capital rules for operational and market risk.  

In the next month, the Basel Committee is expected to publish proposals to remove the advanced measurement approach (AMA) to operational risk, along with the final version of its long-awaited Fundamental review of the trading book (FRTB). Sources say the committee is pushing hard to produce the documents under pressure from the Group of 20 and Basel’s oversight group of central bank governors and heads of supervision – both of which are eager to see the work carried out as quickly as possible.

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Clearing Only a Step on the Path to Derivatives Reform

By James Rundle
December 2, 2015, Financial News

A concrete date for clearing interest-rate derivatives in Europe has arrived – and been welcomed – but don't be fooled: fully implementing the 2009 G20 agreement on over-the-counter market reform is still years away.

The very largest trading firms will now be required to centrally clear certain interest-rate derivatives from June 21, 2016, two months later than expected, after the final text of the clearing mandate was published in the Official Journal of the European Union on December 1.

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FRTB: the Nightmare Before Christmas

By Nazneen Sherif
November 27, 2015, Risk

A long-awaited Basel Committee review of trading book capital rules is nearing its conclusion. That is worrying banks, which point to major outstanding problems with the framework. But supervisors argue a simple recalibration is all that is necessary.

Banks are scared stiff about the likely outcome of the Basel Committee on Banking Supervision's review of trading book capital rules, which is expected in December. Although the Fundamental review of the trading book (FRTB) has been through three iterations and four quantitative impact studies (QISs) since 2012, industry sources say there remain serious outstanding problems with the committee's proposals. But despite this, supervisors seem destined to finalize the rules largely as they currently stand – albeit with a recalibration of the framework to temper the overall capital impact.

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Collateral Outsourcing: Hand Over the Cash

By Dan Barnes
November 23, 2015, The Trade

For an investment manager with more than $16 billion assets under management (AUM), the costs of an outsourced collateral management exceed those of an in-house solution, according to consultancy and services provider Sapient. In its white paper ‘Collateral management: when does it make sense to outsource?’ issued in July, it modelled the expenses that the choice of buying has against that of building.

However, cost is not the only factor involved in the decision to outsource; the technical challenge of moving, tracking and exchanging collateral is such that outsourcing providers are seeing a boom in interest.

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Fed, BOE Officials Mount Defense of Resolution Regimes

By Peter Madigan
November 18, 2015, Risk

Central bank officials from the U.S. and U.K. have hit back at critics who claim the G20 push to establish special resolution regimes for failing banks amounts to a bureaucratic power grab.

"Resolution is a new paradigm. None of us were set up in 2008 to manage the failure of large banks, but as part of that paradigm, in setting out to end too-big-to-fail, we want to make the market work," said Andrew Gracie, executive director for resolution at the Bank of England (BOE). "This is not a power grab by power-hungry authorities. This means where there is a falling knife, shareholders and creditors of these enterprises catch the knife – not taxpayers."

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E.U. Regulators Give Nod to More Clearing Houses

November 13, 2015, Financial Times

Europe has recognised five more countries as having "equivalent" rules to oversee clearing houses, as Brussels steps up efforts to smooth cross-border activity in derivatives.

The European Commission late on Friday said it had adopted equivalence decisions for central counterparties in Canada, Switzerland, South Africa, Mexico and South Korea, FT Trading Room editor Philip Stafford reports.

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