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EU Clearing Timeline Could Drive Banks Out of the Business

By Cecile Sourbes
Published July 29, 2014 Risk

Banks could be forced to close their European swaps clearing businesses, critics claim, after regulators proposed a timeline that would only force prospective clients to start clearing at some point in 2016. Many institutions built their business on the expectation that client clearing would take off in 2015, or even this year.

"We have all wasted money building that business. We are making some revenues in the US now but revenues in Europe are negligible because there are only a few early clients who are clearing. Over time, we will still need to invest in that business but we won't be able to meet our revenue targets," says one head of over-the-counter derivatives clearing at a European investment bank based in London.

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MiFID II Transparency Rules to Hit Derivatives Market

Published July 28, 2014 FOW Intelligence

Amongst the most sweeping changes introduced under the new Mifid II legislation are those relating to pre- and post- trade transparency for transactions executed on trading venues. Transparency requirements under the existing Mifid regime are limited to shares admitted to trading on a regulated market. These new rules will apply to equity-like instruments, including depositary receipts and exchange traded funds, and many non-equity instruments including bonds, structured finance instruments, emissions allowances and derivatives.

The types of trading venues to which Mifid II apply will also be greatly expanded so that such instruments will be subject to transparency obligations if traded on a regulated market, multilateral trading facility (MTF) or organised trading facility (OTF). 

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Liquidity at Heart of MiFID Debate

By Christopher Whittall
Published July 26, 2014 IFR

As a consultation on landmark reforms that will irrevocably change the face of European financial markets draws to a close, a fundamental and deceptively simple question remains at the centre of the regulatory debate: how to define market liquidity.

At stake is the range of products that will be captured by beefed-up pre and post-trade transparency requirements under the EU’s Markets in Financial Instruments Directive and channelled into organised trading facilities – the equivalent of the US’s swap execution facilities.

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Citadel and Virtu Prepare for Tilt at OTC Market

By Joe Rennison
Published July 29, 2014 Risk

Outside the office of one European bank's head of fixed income, trading floor TVs are showing the last minutes of a World Cup giant killing. Tiny Costa Rica – which has no history of footballing success on the world stage – is about to dump Italy, a traditional superpower, out of the competition.

It's a fitting backdrop for the conversation that follows – on whether Citadel, the Chicago-based hedge fund and trading firm, could rival incumbent dealers as an over-the-counter derivatives market-maker.

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US Mistakes Give Europe a Clearer Picture

By Jon Watkins
Published July 24, 2014 The Trade

The extra time given to European buy-side firms having to comply with central clearing rules could have stemmed from regulators learning lessons from issues with the rollout in the US, according to an industry expert.

European regulators published a timeline earlier this month in which they granted non-clearing firms 18 months relief from the implementation of the rules later this year.

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Futures Regulator O'Malia to Be Swaps Group Chief

By Scott Patterson
Published July 23, 2014 Wall Street Journal

A departing Republican futures regulator will take the helm of a major Wall Street trade group in August.

Republican Scott O'Malia of the Commodity Futures Trading Commission will become chief executive of the International Swaps and Derivatives Association Inc., a multinational group of institutions known for pushing back against federal regulation of swaps trading.

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Facing Up to the Financial Transaction Tax

By Elliott Holley
Published July 22, 2014 Banking Technology

A European financial transaction tax on equities and derivatives trades could be damaging for European liquidity levels and the City of London, but  it also looks set to impose serious operational challenges for banks, brokers and their buy-side clients following the failure of a UK appeal to the European Court of Justice earlier this year.

“Based on what we know of the FTT so far, there is a strong risk that this will hurt the market,” said Christian Voigt, business solutions architect at Fidessa. “The tax will impact those who trade a lot, such as liquidity providers. Market makers are needed to provide liquidity to the market in times of stress – but the FTT will discourage them from doing so at the very moment when the market needs liquidity the most.”

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CFTC’s Scott O’Malia to Resign From U.S. Swaps Regulator

By Silla Brush
Published July 21, 2014 Bloomberg

Scott O’Malia, a Republican who used his position on the Commodity Futures Trading Commission to criticize some of the agency’s efforts to rein in the $700 trillion global swaps market, said he will resign next month.

O’Malia, 46, the longest-serving member of the current CFTC panel, will step down effective Aug. 8 after more than four years at the agency, he said in a letter released today.

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The Smart Way to Regulate Overseas Swaps Trading

By Timothy A. Karpoff
Published July 21, 2014 American Banker

The U.S. and Europe have overhauled their approach to regulating swaps over the past five years, generally moving in the same direction and at similar paces. But on key issues like trading, price discovery and market structure, the U.S. and Europe are out of sync—a situation that's been creating upheaval in the cross-border swaps businesses. 

The debate over how to apply U.S. swaps rules abroad has largely centered on the perceived riskiness of overseas trades. But most of the companies that are making the trades are already subject to risk management and capital requirements under both U.S. and European jurisdiction. Now the question is how the application of U.S. swaps rules abroad will impact market integrity and price formation in the derivatives market.

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Wall Street Adapts to New Regulatory Regime

By Victoria McGrane and Julie Steinberg
Published July 21, 2014 Wall Street Journal

Four years after the Dodd-Frank financial law became reality, Washington's regulatory machine is altering Wall Street in fundamental ways.

Banks are selling off profitable business lines, pulling back from the short-term funding market, cutting ties with businesses that could attract extra regulatory scrutiny, and building up defenses to help weather future crises. While profits are up as firms slash costs and reduce funds set aside to cover future losses, their traditional profit engine—trading—is showing signs of weakening as banks step away from some activity amid regulatory pressure.

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