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Investors Urge SEC Reform of CDS Rules

By Mike Kentz
February 6, 2016, IFR

Derivatives market participants are asking the Securities Exchange Commission to speed up the implementation of Dodd-Frank rules for security-based swaps – primarily single-name credit default swaps – in the hope that regulatory reform will rejuvenate the flagging market when credit investors are desperate for robust hedging instruments.

Citadel Investment Group submitted a letter to the agency last week asking regulators to implement mandatory clearing, trading, and straight-through processing requirements that have already been implemented by the CFTC for index credit default swaps.

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Basel Risk Framework Could Reduce Liquidity

February 8, 2016, Markets Media

Basel’s finalised framework for the assessment of market risk could lead to global banks dropping activities which become too expensive, and reduce market liquidity, and may also be implemented differently in different jurisdictions.

The Basel Committee on Banking Supervision published its finalised framework for assessment of market risk, a major part of the Fundamental Review of the Trading Book, on January 14, 2016, following a lengthy consultation. National regulators must implement the new rules by 2019.

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Comment: Credit Default Swaps and Solvency Analysis

By Jeffrey Baliban
February 3, 2016, Law360

Solvency analysis is necessary in a number of dispute circumstances. Valuation earnouts, leveraged buyouts (LBOs) and solvency opinions are just a few. A considerable area in solvency analysis relates to fraudulent conveyances in bankruptcy. But a similar analysis can arise in derivative instruments drafted under the International Swaps and Derivatives Association (ISDA) forms since bankruptcy (and insolvency) is a trigger of default under those agreements.

Regarding fraudulent transfers, the U.S. Bankruptcy Code defines the conditions under which certain asset transfers, usually business payouts of cash or other...

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Banks Press E.U. to Drop `Arbitrary' Derivatives-Collateral Rule

By Silla Brush
February 4, 2016, 
Bloomberg Business

Banks and clearinghouses are lobbying European Union regulators to shelve a proposal setting collateral requirements during the trading day, warning that it could upend broader efforts to reach a deal with the U.S. on oversight for the global derivatives market.

The Futures Industry Association and International Swaps and Derivatives Association, two of the leading trade groups for the biggest dealers in derivatives, said in a joint letter released on Thursday that the plan for intra-day collateral requirements at clearinghouses will cause “major and disproportionate operational complexities” and is inconsistent with U.S. rules.

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Risky Derivatives Trades Face Higher Costs

By Philip Stafford
February 4, 2016, Financial Times

Reform of derivatives enters its final phase this year and tougher rules for banks have aroused fears that other financial institutions will need billions of dollars to remain in the market.

In mid-December U.S. regulators finalized their version of global standards that will require users of highly-tailored and illiquid swaps to post margin, or insurance for trading, with their counterparties — usually global banks.

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Uncleared Margin Rules Face Trans-Atlantic Mismatch

By Mike Kentz
January 30, 2016, IFR

Yet another mismatch is looming in the delivery of post-crisis derivatives reforms across borders – this time in an area that participants say will have the deepest competitive implications for the banking industry of any of the 2009 G20 reforms.

European regulators have yet to finalise rules requiring the collateralisation of uncleared derivatives, but remain publicly committed to an implementation schedule that begins this September.

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U.S. Watchdog Approves New Venues for Trading Interest Rate Swaps

By Philip Stafford and Joe Rennison
January 22, 2016, Financial Times

U.S. regulators on Friday formally recognized 18 new venues for trading interest rate swaps, reflecting the industry’s growing uptake of electronic trading under new rules.

New rules for trading swaps, which are used by banks and corporations to either hedge or take exposure to fluctuating interest rate and currency moves, have dramatically altered the market in the U.S.

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Industry Grapples with 80 Changes in Final FRTB Rules

By Helen Bartholomew
January 23, 2016, IFR

An unprecedented overhaul of rules governing how much capital banks must hold against their trading books has prompted calls for a like-for-like comparison with last year’s Quantitative Impact Study on the Fundamental Review of the Trading Book, as market participants grapple with the impact of 80-plus changes in final rules compared with an earlier draft.

In its final rules released this month, the Basel Committee on Banking Supervision appears to have responded to industry concerns that a four-fold hike in capital requirements calculated under draft rules would further dent already scant liquidity.

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BOE Suggests ISDA Role in Benchmark Administration

By Luke Jeffs
January 25, 2016, FOW

The Bank of England has suggested that trade body the International Swaps and Derivatives Association could act as administrator of a default benchmark in the event that an existing benchmark becomes unavailable.

The Bank of England Working Group on Sterling Risk-Free Reference Rates published on Monday the minutes from its meeting on December 15 and outlined the possibility that ISDA could play a more active role.

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Swaps Exposure Slashed by Nearly Two-Thirds

By Joe Parsons
January 21, 2016, The Trade

Total exposures in the OTC derivatives market were slashed by 62% over the first six months of 2015 due to the use of compression services.

Portfolio compression, which enable banks to offset compatible trades and therefore wipe off trillions of dollars in notional volume, are increasingly being adopted by banks as a means to reduce exposures and post less capital.

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