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Slow Start to Swaps Trading Revolution

By Gregory Meyer and Michael Mackenzie
Published April 22, 2014 Financial Times

A revolution in swaps trading mandated by US regulators has had a slow start. However, the pace should quicken from next month when new rules expand trading opportunities.

The changes, dating from mid-February, moved the opaque and previously unregulated trade in over-the-counter derivatives, primarily interest rate swaps and credit default swaps, on to so-called swap execution facilities, or Sefs, which are subject to strict rules and regulations.

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European Swap Platforms May Shun US Recognition

By Anish Puaar
Published April 21, 2014 Financial News

The latest attempt by the US Commodity Trading Futures Commission to clarify its rules was “too little, too late”, one operator said, adding that it might not be worth applying for approval.

The CFTC rules are intended to ensure that US participation in swaps trades in the EU is subject to some of the essential risk-reduction measures of swap execution facilities, the new platforms in the US on which trading in many popular swap contracts became mandatory in February.

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Pickel Plans to Stay with Swaps Industry After Leaving Isda

By Joe Rennison
Published April 19, 2014 Risk

Robert Pickel plans to stay within the industry after stepping down as chief executive of the International Swaps and Derivatives Association (Isda), and says there may be an opportunity for him at one of the firms that has sprung up as a result of market structure reforms - trading platforms, clearing houses, and repositories. He will continue as Isda's chief executive in a full-time capacity until July.

Pickel first became chief executive in 2001, stepping down in 2009 to become executive vice chairman. He returned to the role at the beginning of 2012, replacing industry veteran Conrad Voldstad.

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US Regulators to Monitor London Over-the-Counter Swaps

By Philip Stafford
Published April 20, 2014 Financial Times

Part of London’s lucrative over-the-counter swaps market is set to come under direct US regulatory oversight as dealers in the UK capital wrestle with meeting tighter rules for overseas swaps dealers accessing US markets.

ICAP, the world’s largest interdealer broker, will next month begin trading US dollar-denominated swaps from its London home on a new US-regulated electronic marketplace.

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US Eases Leverage Ratio Impact on Swaps

By Lukas Becker
Published April 18, 2014 Risk

The US SLR eases the criteria for netting cash variation margin and derivatives exposures – boosting JP Morgan’s ratio by up to 20bp – and European banks hope their own regulators will follow suit

US banks will have greater freedom to net cash margin against over-the-counter derivatives exposures under last week’s proposed revisions to the US supplementary leverage ratio (SLR), bringing down the capital needed to support OTC market-making desks. The changes have already raised JP Morgan’s SLR by up to 20 basis points when compared with the international version of the leverage ratio – agreed by the Basel Committee on Banking Supervision in January – and non-US banks hope their regulators will copy the changes.

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Covered Bond Issuers Cheer EU Swaps Margin Relief

By Matt Cameron
Published April 16, 2014 Risk

Issuers of covered bonds have welcomed European proposals that would exempt them from the need to collateralise non-cleared swaps – a safe harbour that international regulators did not include in their own standards on bilateral margining that were finalised last year.

"This is a good thing for the industry. It acknowledges the special status of covered bonds and the problems pools have with posting collateral. So this proposal gives the market clarity and is a move in the right direction," says Ralf Grossman, head of covered bond origination at Societe Generale Corporate & Investment Banking in Frankfurt.

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Dealers Benefit from OTC Liquidity Split, Buy-Siders Claim

By Peter Madigan
Published April 16, 2014 Risk

Buy-side firms in the US claim dealers stand to benefit from the splitting of over-the-counter derivatives markets into two pools of participants – US persons and non-US persons – as a by-product of Dodd-Frank Act rules on clearing and trading. That could hold back the all-to-all OTC market that is envisaged in both US and European rules, the firms say, and their suspicions may be deepened by revelations from European trading platforms that dealers have urged them not to open their doors to US persons.

"This bifurcation preserves a critical role for the dealers in the global swaps market, and I think that is their key concern," says Michael O'Brien, director of global trading at US asset manager Eaton Vance. "What everyone is afraid of is that we are going to end up with two markets – one for European asset managers and one for US asset managers – and the banks will be the only intermediaries moving liquidity back and forth between the two."

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Swaps Resolution Expected Ahead of G-20

By Helen Bartholomew
Published April 12, 2014 IFR

Regulatory efforts to tackle the “too big to fail” issue could be nearing a conclusion as legal impediments surrounding swap termination rights that have been hampering a cross-border resolution regime for financial institutions look set be resolved in the coming months, eradicating the threat of future taxpayer bailouts.

According to Elke Koenig, president of Germany’s Federal Financial Supervisory Authority, BaFin, the Financial Stability Board is on track to present proposals to global leaders for an international approach to a temporary stay on OTC derivatives contracts for a failed counterparty – a long-standing obstacle to a global resolution regime.

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New Bill Wades Into CFTC Overreach Debate

By Richard Henderson
Published April 11, 2014 The Trade

The Commodity Futures Trading Commission (CFTC) may be limited in its ability to enforce new swaps rules if a bill that has gained early support in the US House of Representatives is passed.

The Customer Protection and End-User Relief Act on Wednesday was approved by the US House Agriculture Committee with bipartisan support and may face a full vote on the House floor.

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Collateralisation Jumps by a Fifth, Says Isda Margin Survey

By Tom Osborn
Published April 11, 2014 Risk

The proportion of uncleared swaps backed by bilateral margin payments jumped by a fifth last year, with 90% of all these trades now subject to a collateral agreement, according to the International Swaps and Derivatives Association's annual margin survey, which was published yesterday.

This year's 61 respondents – the vast majority of them banks or broker-dealers – said that, as of the end of 2013, 87% of their uncleared over-the-counter derivatives trades were backed by a version of Isda's credit support annex (CSA), the industry standard collateral agreement. The majority of those trades not backed by Isda agreements were typically subject to country-specific laws, or non-standard CSAs, the survey finds.

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