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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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EMIR Clearing Rules Set for Further Delays

By Chris Hall and Tim Cave
April 7, 2015, Financial News

European regulators are unlikely to force central clearing on the swaps market for at least another 12 months, according to industry experts, increasing pressure on the units established by banks since the crisis to handle an expected surge in demand for clearing services.

A requirement for standardised swaps to be cleared forms part of the European Market Infrastructure Regulation, or Emir, the region's response to a commitment by G20 countries in 2009 to reduce systemic risk in derivatives markets.

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Comment: A Plan of Action Is Needed to Complete the G20 Transparency Mandate

By Larry Thompson
March 31, 2015, GlobalCapital

Progress on global derivatives reform is at a crucial juncture. The goal of enhanced transparency, identified by the Group of 20 (G20) following the 2008 crisis as crucial to the supervision of the financial system, remains only partly addressed due to a number of practical and legal barriers that limit data sharing across jurisdictions. As a result, the cross-border identification of systemic risk remains challenging for macroprudential authorities.

Progress on global derivatives reform is at a critical juncture. The goal of enhanced transparency, identified by the Group of 20 (G20) following the 2008 crisis as crucial to the supervision of the financial system, remains only partly addressed due to a number of practical and legal barriers that limit data sharing across jurisdictions. As a result, the crossborder identification of systemic risk remains challenging for macroprudential authorities. More specifically, trade repositories, heralded as essential to achieving greater transparency in the global derivatives markets, have not been able to reach their full potential as tools for systemic risk oversight. This is because the 2009 policy response that followed the G20 commitments was developed along national or regional lines, which resulted in a fragmented regulatory landscape.

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Comment: China’s Clearing and Reporting Regimes Being Built Bottom-Up

By Sol Steinberg
March 24, 2015, Risk

China’s derivatives market will be built on the back of G20 reforms, giving one of the world’s largest economies a swaps market designed from the ground up for transparency, regulatory oversight and management of systemic risk.

When members of the Group of 20 met in Pittsburgh in 2009 in the wake of the global financial crisis, they committed to reforms that ushered in a more calculated approach to systemic risk in the financial industry, and along with it, a new market structure for over-the-counter derivatives. Anchored by the principles of mandatory reporting of OTC derivatives transactions, mandatory clearing through central counterparties (CCPs) and mandatory trading on exchanges or electronic trading platforms, the new market the G20 planned for the OTC derivatives space stressed transparency, risk controls and improved protections against market abuses.

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CME Urges Tougher U.S. Response to EU Clearing Dispute

By Philip Stafford
March 25, 2015, Financial Times

The head of the US’s largest derivatives exchanges has suggested European clearing houses be restricted from US markets, if a long-running regulatory spat between the world’s two main regions for derivatives trading is not resolved soon.

Terry Duffy, executive chairman of CME Group, will tell an agriculture committee of the US House of Representatives on Wednesday that equivalent recognition of US clearing houses by European regulators is “the one overriding issue” facing the country’s derivatives markets.

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New Rules for OTC Derivatives Delayed for 9 Months

By Philip Stafford
March 18, 2015, Financial Times

Tougher rules for trading over-the-counter derivatives have been delayed by nine months after regulators acknowledged that an initial timetable was too tight for the industry to comply.

Banks, brokers and big asset managers will have until September 1, 2016 to prepare before new rules that force market participants to post margin for privately agreed OTC deals are phased in, say regulators.

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Banks United on Collateral Crisis

By Tim Cave
February 23, 2015, Financial News

A group of investment banks including Goldman Sachs is in the early stages of a project to help the financial industry meet an expected surge in demand for collateral as a result of post-crisis regulations.

The initiative, dubbed “Project Colin”, aims to create an “industry collateral infrastructure”, according to people familiar with the plans. The banks are working with settlement house Euroclear, according to one person. All parties declined to comment.

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First Year Report Card: Part III

February 12, 2015, The Trade

With the reporting of derivatives trades one of the four key pillars within the G20’s market reforms, regulators will be keen to see their enforcement of reporting requirements produce some results.

National watchdogs may have cut the buy-side some slack during the first year of trade reporting, but now they are beginning to sharpen their teeth and punishments for failures could be on the horizon.

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