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Comment: Banks Promise No Lehman Moment by Relying on Unfinished Derivative Rule Change

By Antoine Gara
July 7, 2015, Forbes

“Relax! This time, if we fail, we won’t drag the rest of capitalism down with us.” That seems to be the message from America’s financial powerhouses after a read through of their updated living wills, delivered to the Federal Reserve and FDIC this July.

JPMorgan ChaseGoldman Sachs Group and Morgan Stanley all said that if they were to default in a new crisis scenario, they don’t foresee another Lehman Brothers moment — a messy bankruptcy that freezes trillions of dollars in trades and anchors the country’s largest lenders and asset managers to a single sinking firm. But, much of that assurance rests on an arcane and yet to be finalized change to the way trading occurs in the $630 trillion market for over-the-counter derivatives.

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OTC Derivatives Trade Reporting Costs 'Will Rise'

By Joanna Wright
July 8, 2015, Waters Technology

Most institutions are still using in-house systems for reporting data to trade repositories.

The majority of market participants expect the cost of over-the-counter derivatives trade reporting to rise, a new survey has found.

Sapient Global Markets this month released the findings, gathered by canvassing some 50 delegates to the 30th annual general meeting of the International Swaps and Derivatives Association (ISDA), held in Montreal in April.

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Buy-Side Facing Up to Derivatives Challenge

June 29, 2015, The Trade

The buy-side share of the derivatives business has grown to record levels over the last decade, as they use derivatives in significant volumes to hedge risks or tap hard-to-access investments. But will this work be curtailed due to the clutch of new market regulations on the horizon?

It is a tricky situation to be in. On the one hand, investors have been grappling with a low interest rate environment and derivatives are being used more than ever to tap into higher-yielding investment strategies and hedge risk. On the other hand, new regulations like the European market infrastructure regulation (EMIR), Solvency II, UCITS V and MiFID II are putting ever more stringent requirements on investors, making it more costly and more complicated to use derivatives. Many believe this could curtail buy-side use of derivatives in the future.

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Legal Action Heats Up in Swaps Suit

By Katy Burne
June 23, 2015, The Wall Street Journal

Allegations that banks and two swaps industry groups colluded against would-be competitors in the credit-derivatives market are rippling through the investment world again.

Three swaps participants, BlueMountain Capital Management LLC, Citadel LLC and Pacific Investment Management Co., or Pimco, received subpoenas in recent months under an investor lawsuit alleging anticompetitive practices by the banks and industry groups, according to people familiar with the matter. No wrongdoing is alleged on the part of the firms receiving the subpoenas.

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Global Data Harmonisation of Derivatives Reporting Gains Ground

June 24, 2015, FTSE Global Markets

The US Depositary Trust and Clearing Corporation (DTCC) in mid-June issued its recommendations that the industry focus on harmonising roughly 30 credit derivatives fields across trade repositories; fields deemed critical to financial stability and systemic risk analysis. The pillar of the US post trade industry has submitted its proposals on global data harmonisation to the Committee on Payments and Market Infrastructures (CPMI) at  IOSCO. The move is the latest in a series of initiatives with the goal of updating, improving and harmonising the reporting of derivatives trades across the globe.

The call for regulators to look at data accuracy and integrity comes at a welcome time. It coincides with one of the founding principles of BCBS-239, which asks banks to measure and monitor accuracy of data. But while looking for accurate data is all well and good, alone it isn’t sufficient. The quality of data must be actively managed. This requires efficient workflows for data errors, as well as a framework for continuous improvement to ensure that the quality of information remains at acceptable levels,” say Dev Bhudia, vice president of Product Management at GoldenSource.

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ISDA Rallies Support for Derivatives Data Reporting Rethink

By Elliott Holley
June 16, 2015, Banking Technology

Eleven financial associations have published their support for a new set of derivatives reporting standards developed by ISDA, which is calling for greater cross-border harmonisation of data standards – even if that means some national laws will have to be amended.

ISDA – essentially the representative body for participants in the derivatives markets with 800 members including banks, exchanges, clearing houses, investment managers, commodities and energy companies, insurers and government entities –  has published a set of data reporting principles, which it says will improve the consistency of the data being reported and thus help regulatory transparency.

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Markets Urge Regulators to Fix Data Confusion

By Philip Stafford
June 15, 2015, Financial Times

In a rare display of unity, banks, futures brokers, hedge funds and asset managers have joined together to urge global regulators to resolve the growing chaos around reporting requirements for trades.

Eleven of the financial industry’s most high-profile trade associations have called on authorities around the world to present them with consistent and harmonised standards for the market to follow.

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ESMA Set to Finalise MiFID Proposals

By David Wigan
June 6, 2015, IFR

The European Securities Markets Authority is set in the coming days to agree a final draft of MiFID II, before sending the document to supervisors for approval at the end of the month.

In a behind-closed-doors meeting on June 10, ESMA’s Secondary Markets Standing Committee will discuss several revisions to the draft technical standards published in December, sources told IFR. The review follows a storm of industry protest about requirements for pre-trade transparency and 15-minute post-trade reporting (to be reduced to five minutes after three years).

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Swaps Margin Utilities Ramp Up

By Mike Kentz
June 6, 2015, IFR

Industry providers have begun ramping up the provision of swaps collateral tools to address the impending implementation of a colossal change to the margining framework for uncleared derivatives transactions.

Industry group ISDA last week announced a licensing programme for a margin calculation model known as the Standard Initial Margin Model that will substantially ease the market’s ability to agree on collateral exchange terms for uncleared swaps.

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Project Colin: Why Goldman-Led Margin Hub Fell Apart

By Peter Madigan
June 1, 2015, Risk

The world’s big dealers quietly started work on a new swaps market utility last year, dubbed Project Colin. The aim was to control the vast collateral flows arising from incoming bilateral margining rules, but the consortium has since fallen apart, and a coalition of middleware and back-office firms have stepped into the breach

Nothing imbues glamour like a top-secret project with a mysterious codename, so when collateral managers at the big swap dealers started work on a new margining utility last year, it was a chance to cloak themselves, for a while, in a little intrigue.

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