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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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Borders Undermine Drive to Solve “Too-Big-to-Fail” Banking Problem

By Huw Jones
May 17, 2015, Reuters

Regulators are worried that patchy application in Europe and beyond of new rules to solve the problem of banks that are "too big to fail" could make it harder to avoid a repeat of the mayhem that followed the collapse of Lehman Brothers.

They point to likely inconsistencies in how banks will be treated under the rules that are being written, not only between European authorities in and outside the euro zone but also in jurisdictions further afield such as the United States.

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Comment: Are We Set for the Rise of the Non-Bank FCMs?

By Gerry Turner
May 14, 2015, FOW

Decreased trading volumes, low interest rates, increased regulation and higher transaction costs have all but suffocated business models that have worked for years, even decades. Furthermore, high operational costs and client pressure for new services at lower prices have intensified impending challenges. In 2014, we saw a number of banks either reduce their client list or quietly back away from the clearing business completely as they felt the squeeze of leverage ratio and capital requirements. Banks have to reevaluate their technology investment and determine ways to deliver unique value to their clients.

As 2015 rolls on, we will see the continued rise of the non-bank futures commission merchants (FCMs) that don't have banking licenses to protect. Historically, these firms have specialized in access to regional markets. Now, their non-bank status gives them increased flexibility to provide bespoke solutions to buy-side firms exploring new markets and asset classes.

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Decoded: The U.S.-E.U. Derivatives Stand-Off

By Tim Cave
May 11, 2015, Financial News

US and European regulators are still at loggerheads on how to harmonise new rules overseeing the $600 trillion derivatives landscape, threatening activity across the world’s two largest swaps markets.

The impasse has returned to the fore after Jonathan Hill, European Commissioner for financial stability, and Timothy Massad, chairman of the US Commodity Futures Trading Commission, failed to reach an agreement in Brussels on May 7 on the ‘mutual recognition” of each region’s clearing rules.

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E.U. Lawmaker Urges Global Approach to Avoid Clearing “Armageddon”

By Tim Cave
May 7, 2015, Financial News

A senior European lawmaker has said a global framework for how clearing houses should react in times of market stress is the “only viable option” in the push to prevent what she described as the next “financial Armageddon”.

Kay Swinburne, a member of the European Parliament and a co-ordinator for the influential Economic and Monetary Affairs Committee, told an audience at a World Federation of Exchanges conference in Brazil on Tuesday that global standards for clearing houses are “within our grasp”.

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Comment: Data Integrity and Post-Crisis Regulatory Reform

By Mark Brennan
May 7, 2015, Banking Technology

As in the universe of human ethical behavior, the precise definition can be hard to nail down – though, as with human conduct, we practitioners feel we recognize it when we see it.   What does it mean for data to be whole, sound, or perfect?  Clearly, accuracy is paramount.  As long as there have been information technology systems serving financial services, data integrity has obtained as a core principle:  each business fact must be mapped to understandable datum; system functionality must produce, or derive, correct data.  But an adjacent principle is transparency:  unless behavior – or information – is clearly delineated or articulated, there can be no integrity.

Thus the global regulatory drive for transparency in financial markets has in turn given way to an urgent need for data integrity.  Going back to the G20 summit in Pittsburgh in September 2009, following the great recession, the world’s leading countries agreed that there needed to be more transparency and risk mitigation for the global derivatives market, in the form of organized clearing, reporting and trading.  These principles were later enshrined in Dodd-Frank’s Title VII, and are at varying rates of progress in the EU in the form of the EMIR and MiFID II regulatory initiatives.

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Are OTC Derivatives Rules a Blessing or a Curse?

By Chris Hall
April 30, 2015, The Trade

Asia’s OTC derivatives markets have been both blessed and cursed by the fact they have implemented the structural reforms demanded by the Group of 20 in the wake of the larger European and US markets.

Blessed, in the sense that they can learn from the mistakes and experience of those countries that went before.

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Banks Scale Back on Clearing Ambitions

By Joel Clark
April 29, 2015, Financial News

We want you to do this. But we don’t want you to do this. That’s the confusing message being sent by regulators to banks that have set up units to clear derivatives transactions.

This is one of the few areas of business that banks – which have largely shrunk since the crisis – have expanded.

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