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Regulatory Impact on Swaps Minimal, Managers Say

By David Wigan
June 27, 2015, IFR

Soaring interest rate volatility led to a surge in hedging activity in recent weeks, providing the first clear picture of the impact of post-crisis regulation on investor demand for over-the-counter derivatives. And the apparent answer is that not much has changed.

With European and US bond yields soaring to their highest levels in eight months, fund manager appetite for swaps appeared to be undiminished, while futures activity remained flat.

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Smooth Operator: Japan Looks to Ease Into Electronic Trading

By Aaron Woolner
June 17, 2015, Risk

Japanese authorities look to avoid a repeat of the Sef mandate liquidity fracture.

It is not obvious exactly how much cleared dollar interest rate swap volumes fell on the first day of mandated Sef trading on February 2014, but fall they did. And with Japan going live with its electronic trading platform (ETP) mandate on September 1, you would expect brokers in Tokyo to be preparing for a sizeable fall in their yen IRS volumes.

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Pressure to Complete U.S. Swaps Revolution

By Philip Alexander
June 1, 2015, The Banker

The advent of swap execution facilities has not brought about the open access to trading that buy-side participants expected.

What’s happening?

The US swap execution facility (SEF) mandate came into force in February 2014. Any swap deemed by an SEF to be made available to trade (MAT) on its electronic platform must be traded through a SEF and cleared through a central counterparty. Central clearing is designed to reduce bilateral counterparty risk in derivative trades, while SEF trading is intended to increase price transparency and ensure equal access for all participants.

However, the Commodity Futures Trading Commission (CFTC) devoted part of the first meeting of its newly created market risk advisory committee (MRAC) in April 2015 to the question of why SEFs have not fulfilled expectations. More than 50% of swap trades now take place on SEFs, but buy-side representatives at the MRAC complained that the underlying relationships between market participants have not changed. 

What’s the problem?

SEFs offer two general methods of trading. Clients can place requests for quotes (RFQs) that will be fulfilled by dealers, or market players can participate in a central limit order book (CLOB) that operates in the same manner as a stock exchange. But SEF market activity is bifurcated, and increasingly consolidating around a few platforms. Most dealer-to-client SEF business happens on an RFQ basis on Bloomberg or Tradeweb. On the other hand, dealers are hedging client trades on a CLOB basis, on SEFs operated by the dominant inter-dealer brokers such as ICAP and Tradition. The CLOB allows the SEF to operate more like a conventional exchange.

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IDBS Grapple with Elusive OTF Clarity

By Helen Bartholomew
May 16, 2015, IFR

Inter-dealer brokers are struggling to make headway on developing new systems for a European swaps trading regime that is set to go live in 2017. With little guidance from regulators as to the shape of new venues for trading such instruments, a new distraction is emerging now that the UK is on course for a potential European Union exit by the time new regulations hit.

Draft regulatory technical standards for the second version of the EU’s Markets in Financial Instruments Directive are currently being prepared by the European Securities & Markets Authority.

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SEF Users: Anonymity, Please

May1, 2015, Markets Media

The practice of name give-ups on some trades executed via swap execution facilities is hampering buy-side acceptance of the trading venues.

Timothy Massad, chairman of the U.S. Commodity Futures Trading Commission, has stated that the agency will look into the practice in which traders’ identities are disclosed during post-trade processing, when they were intended to remain anonymous.

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CFTC Fine-Tunes Rules Covering Swap Trading Venues

By Katy Burne and Andrew Ackerman
April 24, 2015, The Wall Street Journal

A top U.S. derivatives regulator unveiled a package of modest regulatory amendments designed to bolster new trading platforms for swaps, including steps that would give them greater flexibility in how they handle clerical errors and confirm trades.

The changes, detailed by Commodity Futures Trading Commission Chairman Timothy Massad at an industry conference in Montreal, are small adjustments aimed at “fine-tuning” the agency’s rules for the platforms, Mr. Massad said in a keynote speech at the International Swaps and Derivatives Association’s annual general meeting.

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Massad: SEFS Fear Retaliation if They End Name Give-Up

By Peter Madigan
April 23, 2015, Risk

Isda AGM: CFTC chair is “very concerned” by claims that firms are being shut out of Sefs.

A seemingly trivial stand-off over the disclosure of counterparty names may threaten one of the pillars of US swap trading rules – the provision of impartial access – the head of the US Commodity Futures Trading Commission (CFTC) has said.

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CFTC May Need to ‘Step In’ to End MAT Drought – Reinhart

By Duncan Wood
April 22, 2015, Risk

Pimco derivatives counsel endorses review of Sef-expansion rules.

The US Commodity Futures Trading Commission (CFTC) may need to take “a greater role” in extending the list of swaps required to trade on new platforms, one of its commissioner’s top staffers has warned – a response to a 13-month drought in requests from the swap execution facilities (Sefs) themselves.

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Global Swaps Markets Continue to Fragment – ISDA

By Cian Burke
April 22, 2015, FOW

Euro IRS traded between European dealers has increased in the past two years.

Global derivatives markets are continuing to fragment along geographical lines due to different regional regulations, according to new research by trade body the International Swaps and Derivatives Association (Isda). 

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Hedge Fund Push on Swaps Trades Hits Snag With CFTC’s Giancarlo

By Silla Brush
April 21, 2015, Bloomberg Business

Hedge fund lobbying hasn’t persuaded a key U.S. regulator that the government should step in to curb Wall Street banks’ power over the $700 trillion swaps market.

At issue is a requirement that customers disclose their identities when they buy and sell derivatives on some swap-execution facilities. D.E. Shaw & Co. and Citadel LLC want the Commodity Futures Trading Commission to end the practice, which they say gives banks access to proprietary-investing strategies and discourages trading

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