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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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Can Firms Afford to Comply with Trade Reporting Requirements?

June 24, 2015, FTSE Global Markets

Now that most G20 member states have mandated trade reporting of derivatives, market participants have an opportunity to evaluate the agility and sustainability of their current approach. In this article, Randall Orbon, Arun Karur and Cian Ó Braonáin of Sapient Global Markets discuss the state of trade reporting and show how growing costs, complexity and regulatory scrutiny are fuelling a compelling business case for third-party managed solutions.

To address the trade reporting requirements outlined in Dodd-Frank and EMIR, many organisations made significant investments in internal systems. Now additional regulations and further enhancements—including MiFID II/MiFIR and requirements in other regions—are poised to effect more change. In addition, it is likely that regulators will begin to scrutinise data and organizations will need ways to create assurance and paths to remediation for trades that are self-reported or reported on their behalf.

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Comment: Clearing: More for Less?

By Tomas Kindler
June 23, 2015, FOW

How can central counterparties be best encouraged to mitigate the risks deriving from their growing importance to financial markets? 

The wider use of central counterparties (CCPs), particularly for clearing over-the-counter derivatives transactions, is a trend reinforced by the G20 and encouraged by regulators more broadly. The pros and cons of this trens have received numerous media airings. Taking it as a given, therefore, I would like to explore in more detail the consequences of the growing importance of CCPs in the securities landscape. Specifically, I want to address two issues: the risk implications of greater CCP use; and how best to encourage a healthy engagement with these risks by the CCPs themselves.

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Leverage Ratio Threatens Clearing Viability, Warns FIA

By Helen Bartholomew
June 13, 2015, IFR

The swaps clearing mandate under the European Market Infrastructure Regulation is not viable unless regulators relent on Basel III leverage ratio requirements that treat client segregated margin as a leveraged asset on the balance sheet, the Futures Industry Association in Europe has warned.

Coinciding with its annual European IDX Derivatives Expo held in London last week, the industry group – representing 170 firms involved in listed and centrally cleared derivatives markets – is calling on regulators to recognise the exposure-reducing effect of client segregated margin that is held by clearing brokers to back cleared over-the-counter derivatives trades.

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Dealers Cling to “Commercial Policy” as Get-Out in MiFID II Price Tiering Downfall

By FIona Maxwell
June 11, 2015, Risk

Mifid II’s pre-trade transparency proposals are set to put an end to client-specific derivatives pricing for end-users, force small tickets on to platforms and potentially push customers into the arms of smaller dealers.

Good clients will no longer get the best prices, derivatives exposure will be spread around an array of small banks instead of being concentrated with the market leaders, and it will be impossible to pick up the phone and get a quote for a small trade. For European corporates and buy-side firms, this is what tomorrow's bilateral swaps market looks like – according to dealers, at least – and alarm bells are already ringing.

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Banks Win Six-Month Reprieve on Clearing Capital Rules

By James Rundle
June 4, 2015, Financial News

The European Commission has delayed by six months the deadline for banks to put in place capital to protect themselves against a clearing house default, giving European and US authorities extra time to hammer out an agreement on equivalence.

Originally set to take effect from June 15, the rules would have required banks to analyse their potential exposure to clearing houses and set enough capital aside to cover potential losses. The transitional period will now be extended to December 15, the Commission announced on Thursday.

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Australia Outlines Draft Mandatory Clearing Rules

By Cian Burke
May 29, 2015, FOW

Asic has launched consultation on draft rules with submissions due by July 10.

Australian regulators released on Thursday draft rules for mandatory clearing of over-the-counter (OTC) interest rate swaps, marking the country's latest efforts to meet its G20 commitments to reform its derivatives markets.

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European Regulators Brace for EMIR Grilling

By James Rundle
May 28, 2015, Financial News

A select group of market participants will convene in Brussels tomorrow to iron out continuing issues with its derivatives trading rulebook.

The European Commission is to host its second public hearing on the review of the European Market Infrastructure Regulation, which radically changed derivatives markets in Europe when it came into force in August 2012.

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Helping Clearing Houses Avoid a Crash

By James Rundle
May 20, 2015, Financial News

Lehman Brothers wasn’t the first bank to fail overnight but when, in 2008, it did, the world’s economy teetered on the brink of collapse. One of the unsung heroes of that harrowing period was clearing house LCH.Clearnet, which was thrust into the heart of the volcano through its role as the middleman in most of the bank’s derivatives trades.

Tasked with unwinding the bank’s portfolio, LCH’s then chief executive Roger Liddell described it at the time as “the most complex and challenging default in our history”. That success has helped clearing houses, often known as counterparties, or CCPs, take an even more pivotal role in the financial system, such as the decision of G20 leaders in 2009 to mandate that many standardised derivatives should settle through clearing houses for the first time.

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Buy Side ‘Can’t Justify’ Clearing OTC Derivatives in Europe Yet

By Jon Watkins
May 19, 2015, The Trade

Buy-siders at this year’s Euroclear Collateral Conference have said they are not clearing OTC derivatives in Europe until regulators make it mandatory.

With the rollout of new central clearing rules for OTC derivatives now penciled in for early 2016, the general consensus among panelists and the audience was that they would not be clearing the bilateral products prior to implementation.

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