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Swaptions Clearing Proves Tall Order

By Christopher Whittall
Published July 19, 2014 IFR

Efforts from central counterparties to expand the range of rates products they clear are stalling amid growing industry concern that it could be dangerous to shoehorn more exotic derivatives into clearing houses.

While CCPs may soon launch clearing of inflation swaps, bringing the far larger swaptions market into the fold is proving a much tougher nut to crack. This has led to a difference of opinion between the two largest interest rate swap CCPs regarding how soon the product can begin to be cleared.

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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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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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CCP Switch Services Gain Traction

By Mike Kentz
Published July 21, 2014 IFR

Swaps brokers are looking to capitalise on growing market demand to reduce the margin costs associated with central clearing, by launching services that allow users to switch between derivatives clearing houses with greater ease. 

Tradition and GFI Group are both building out infrastructure to allow participants to seamlessly switch exposures across the two major swaps clearing houses, CME Group and LCH.Clearnet.

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ICE’s Swap Execution Facility Head Barsoom to Leave in August

By Matthew Leising
Published July 18, 2014 Bloomberg

Peter Barsoom, president of Intercontinental Exchange Inc. (ICE)’s swap trading service, is leaving the company at the end of August.

For the past four years, Barsoom, 43, has helped Atlanta-based ICE develop futures contracts on credit-default swaps and build the company’s swap execution facility, ICE Swap Trade LLC, one of the venues mandated by the Dodd-Frank Act to increase transparency and competition in derivatives trading.

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Russia Sanctions Could Trip Up CDS Markets, Lawyers Warn

By Matt Cameron and Fiona Maxwell
Published July 17, 2014 Risk

Sanctions imposed this week by the EU and US on named Russian companies could trigger CDSs, but would also make auctions difficult, lawyers are warning

The extension of European and US sanctions on Russia to include a number of banks and energy companies could trigger defaults on the companies’ foreign currency bond issues, lawyers are warning – and could also make it difficult for firms that are holding credit default swap (CDS) protection on those names to settle the trades.

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Credit Suisse Replaces Barclays as Biggest Swaps Clearer

By Joe Rennison
Published July 17, 2014 Risk

Credit Suisse has leapfrogged Barclays to become the biggest over-the-counter derivatives clearer in the US, as measured by the amount of client margin its futures commission merchant (FCM) is required to hold. As of June 30, the Swiss bank faced a requirement of at least $7.2 billion for cleared swaps – a figure that has shot up 83% in the past eight months – according to data compiled by the National Futures Association (NFA).

The NFA started publishing data on swaps collateral by FCM in August 2013. The statistics are not strictly a measure of the size of a bank's business in terms of client or trade numbers, but reveal how much risk an FCM's clients are clearing.

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Respite for Derivatives Deals from Incoming European Rules

By Philip Stafford
Published July 17, 2014 Financial Times

Swaps dealers and banks are set to win a respite from meeting incoming European derivatives rules after regulators admitted their implementation put market participants’ right to legal certainty of their contracts at risk.

The European Commission has agreed with a proposal suspending the status of derivatives deals entered into from March 18 until the region’s main regulator determines which instruments should face mandatory clearing later this year.

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Bank of England Condemns UK Banks' Mis-Selling of Rate Swaps

By David Milliken
Published July 15, 2014 Reuters

The Bank of England said on Tuesday that British banks had a "dreadful record" on mis-selling complex interest rate hedging products to small businesses and warned that it would keep a close eye on them.

Before the financial crisis, many businesses bought the products to protect against interest rate rises, but ended up facing crippling costs after the BoE cut rates to a record-low 0.5 percent in March 2009.

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