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DERIVATIVES: Swaps Fragmentation Begins to Subside

By Mike Kentz
Published September 11, 2014 IFR Asia

The fragmentation of liquidity in certain over-the-counter swaps contracts across national borders may finally be subsiding, a year after Dodd-Frank regulations first pushed European market participants away from their US counterparts.

International clients are slowly beginning to warm to the idea of trading on swap execution facilities after having avoided the platforms for the past year, according to platform operators. 

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CDS Notional Begins Increase Following Sizeable Slump

By Beth Shah
Published September 11, 2014 Global Capital

Overall credit default swap notional reported to swap data repositories last week increased 33% from the previous week, according to data from the International Swaps Derivatives Association.

This follows two weeks of falling volumes with a combined decrease of 57%. Overall interest rate derivatives that was reported, also increased by 18%.

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OTC Industry to Aid Bank Resolutions

Published September 11, 2014 Markets Media

The rights of holders of OTC derivatives to terminate the contracts during the course of a bank resolution are likely to be trimmed back, according to regulatory and industry officials.

The Financial Stability Board, the oversight group of the world’s central banks, is working to mitigate the risks caused by early termination by lengthening the time required to suspend such contracts.

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Fragmentation Worries OTC Users: Survey

Published September 10, 2014 Markets Media

Fragmentation in the OTC markets is being driven by a lack of cohesion by national regulators on execution, reporting, and clearing of swaps transactions, according to a survey by the International Swaps and Derivatives Association.

“We don’t want market fragmentation,” ISDA CEO Scott O’Malia said at a press briefing on Tuesday at the ISDA North America conference in New York. “In the end-user documentation, we have concerns regarding fragmentation, and the cost, and the quality of the liquidity. That’s a concern for end users, and they believe it’s going to undermine their ability to get access and get good pricing.”

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Global Deal in Sight to Prevent Re-run of Post-Lehman Chaos

By Huw Jones
Published September 9, 2014 Reuters

The $700 trillion (434.16 trillion pounds) financial derivatives industry will make a fundamental change to its contracts this year to help regulators wind down failed banks without destabilising markets, the world's main derivatives body said on Tuesday.

Global financial watchdogs want to be able to put a temporary halt on market participants trying to "close out" derivatives contracts if a bank runs into trouble.

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IM Poses Serious Concerns, Standardisation Model Needed

By Beth Shah
Published September 9, 2014 Global Capital

Calculating initial margin for uncleared over-the-counter derivatives posing significant challenges for the industry and market participants need to look at adopting a standardized model to ensure consistency when calculating margin.

Speaking at Tuesday's International Swaps and Derivatives Association’s 2014 Annual North America Conference in New York, ISDA Chairman Stephen O’Connor said without a standardised model the system will grind to a halt. During the Fireside Chat with Scott O’Malia, ceo at ISDA, O'Connor noted pricing OTC margin is going to make things more expensive for the market. He added there is a very short implementation deadline – beginning Dec. 2015– and a phased-in approach coupled with implementation delays are required because national regulators have yet to finalise rules.

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D.E. Shaw: Buyside Irked Over Counterparty Trading Constrictions

By Beth Shah
Published September 9, 2014 Global Capital

US regulation may mean investment managers that are operated and managed out of the US will have to constrict their trading to US counterparties, therefore introducing barriers to trading opportunities and hampering their competition.

Speaking at the International Swaps and Derivatives Association’s 2014 Annual North America Conference on Tuesday, Darcy Bradbury, managing director and director of external affairs at the D.E. Shaw Group, noted where a firm is established has become an issue. If an investment manager operates out of, and is headquartered in the US, they will be subject to US rules for a US entity despite perhaps having funds that are in other jurisdictions, for example the Cayman Islands, Bradbury said. “A UK manager might have an offshore location as well and the establishment language in both [the European Market Infrastructure Regulation] and [Markets in Financial Instruments Directive and Regulation] doesn’t give them a lot of flexibility,” she said.

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ISDA Insight Survey: Derivatives Vital to End-Users, but Fragmentation a Concern

Published September 9, 2014 ISDA Press Release

Over-the-counter (OTC) derivatives continue to be an integral part of end-user risk management strategies, according to a survey published today by the International Swaps and Derivatives Association, Inc. (ISDA) at its 2014 ISDA Annual North America Conference in New York.

An overwhelming majority of end-users intend to keep their use of derivatives at similar or higher to current levels over the last three months of the year. However, the survey shows that end-users are concerned about the impact of a lack of regulatory coordination, market fragmentation and increased costs of hedging.

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Frontloading Still a Thorn in Industry's Side

Published September 2, 2014 Automated Trader

Published responses to ESMA's clearing obligation consultation show an industry still grappling with the potential fallout of implementation.

Under the European Market Infrastructure Regulation, firms will be clearing interest rate and credit default swaps through central counter parties. For IRS, four classes of swaps are up; basis swaps, fixed-to-float interest rate swaps, forward rate agreements and overnight index swaps on a range of currencies and maturities.

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CDS Notional Continues Decline by 27%

By Beth Shah
Published August 26, 2014 Global Capital

ISDA reported that there was a 33% decrease in the notional cleared for CDS and 41% less executed on swap execution facilities, compared with the previous week. Rates also saw a decrease, with 18% less volume cleared, and 21% less executed on SEFs last week.

The total notional cleared only dropped to 74% in both asset classes, with a 6% drop in CDS, and 5% decline in rates. The total notional executed on SEFs also dropped in CDS and rates; 13% to 56%, and 5% to 47%, respectively.

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