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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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Volatility Could Limit Banks’ Buy-Side Support

Published April 11, 2014 The Trade

The ability of banks to support asset managers’ OTC derivatives trading and clearing could be limited due to increased market volatility, Piers Murray, global head of fixed income prime brokerage for Deutsche Bank, has said.

Banks face growing pressure to lower the amount of capital used to support client swaps activity as part of post-crisis reforms to reduce systemic risk. This, Murray said, could be exacerbated by changes to volatility.

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Emir Reporting Launch Was Satisfactory – Esma’s Petrenko

By Matt Cameron
Published April 11, 2014 Risk

Thousands of companies were stuck in queues when Europe's reporting regime took effect on February 12, some repositories were overwhelmed with data, and more than half of the one-sided trade reports filed so far cannot be matched up with the second side of the transaction – but the rules have got off to a satisfactory start, according to an official at the European Securities and Markets Authority (Esma).

Speaking yesterday at the annual meeting of the International Swaps and Derivatives Association in Munich, Olga Petrenko, market integrity officer with Esma, said problems had been expected and stressed the vast amount of work required by the industry.

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ISDA AGM: RFQ Dominates SEF Execution

By Helen Bartholomew
Published April 10, 2014 IFR

A regulatory-driven overhaul in the way that over-the-counter derivatives are traded has seen much of the US$693trn swaps market cleared through central counterparties and standardised contracts traded over newly-created swap execution facilities. But the rise of new platforms for trading swaps remains some way from the exchange-like model that regulators may have envisaged, with client and dealer preferences veering firmly towards the “request for quote” model that has always prevailed in OTC markets.

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Traders Warn on Deadline for New Swaps Rules

By Philip Stafford
Published April 10, 2014 Financial Times

Swaps dealers have warned a mid-May deadline forcing them to comply with new US rules for over-the-counter trading remains tight, even after a US regulator clarified its positions on some key issues.

The Commodity Futures Trading Commission said late on Wednesday that venues trading US products, and customers in Europe will be required to report trades to US data repositories. They will also provide US officials with monthly reports on the activity of their US customers.

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Barclays' Harrison Calls for Phased Start to Clearing in Europe

By Duncan Wood
Published April 10, 2014 Risk

European derivatives users have been urged "don't be late to the party", with the clock now counting down to the start of mandatory clearing.

Speaking at the annual meeting of the International Swaps and Derivatives Association, Harry Harrison, co-head of securities at Barclays, said European regulators should relieve pressure on market participants by phasing the start of the regime, as was the case when clearing rules took effect in the US last year.

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Derivatives Rules Softened in Victory for Banks

By Matthew Leising
Published April 10, 2014 Bloomberg

In a victory for banks, global financial regulators revised rules governing how much money must be set aside to cover losses by swaps traders, backing away from guidelines that firms warned would destabilize the $693 trillion derivatives market.

The Basel Committee on Banking Supervision’s final rule, released today, would require swaps dealers to hold less cash to protect against defaults than did a proposal published last year. The plan now applies a minimum 20 percent risk weighting to money deposited at clearinghouses, which are third parties that guarantee the transactions, down from 1,250 percent in the original proposal. The change takes effect on Jan. 1, 2017.

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Tough Swap Standards Drive Up Trade Costs 92-Fold

By Matthew Leising
Published April 10, 2014 Bloomberg

New rules aimed at making the world safer from blowups in the $693 trillion derivatives market are poised to drive up costs so much for retirement funds and other users that bankers say they do just the opposite.

The toughened standards, hatched five years ago after derivative losses almost crashed the global economy, are meant to safeguard trades and bring more openness to a market whose secrecy and sheer size overwhelmed regulators in 2008. Where swaps had been one-on-one deals before, now they would be backstopped by third parties in clearinghouses that ensure everyone can pay, with the aim of avoiding emergency bailouts and panic.

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