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Rates Businesses Diverge

By Christopher Whittall
Published September 5, 2014 IFR

The retrenchment in banks’ rates trading businesses shows little signs of abating, as what was once the engine room of investment banks’ revenue streams continues to feel the squeeze from the combined weight of tougher regulations and record low interest rates.

The decision from rates trading behemoth Barclays to overhaul its operations earlier this year, and hive off exposures into a non-core unit, was viewed as symptomatic of a broader malaise in the asset class, which has already seen deeper cuts at former stalwarts including Credit Suisse, RBS and UBS.

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Regulators Unveil New Version of Swaps-Margin Rule

By Victoria McGrane
Published September 3, 2014 The Wall Street Journal

Commodity industry groups have urged Brussels to resolve a long-running delay over their definition of off-exchange derivatives, arguing the deferment is putting European markets “at a material competitive disadvantage” to rivals.

Lobby groups representing more than 900 commercial commodity market participants sent a letter last Friday to Jonathan Faull, the head of the European Commission’s markets division, urging him to define which overseas markets would be exempt from tougher new rules clearing over-the-counter derivatives trades.

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Robot Risk Managers Excite Swap Market-Makers

By Lukas Becker
Published September 1, 2014 Risk.net

In the swap market of tomorrow, prices will be made, executed and risk managed by algorithm – a low-cost, high-volume vision of the future that has obvious appeal for a business struggling to hit its return targets. The idea has been held back by a lack of electronic venues with which robot traders can interact, but the arrival of swap execution facilities (Sefs), which are required to offer order-book trading, brings it a big step closer.

"Everyone is looking at this right now. I don't think there is a bank on the street that isn't exploring automated hedging," says the head of fixed-income e-commerce at one UK bank.

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Eurex Opts for Goldman’s Swap Future Patent

By Anish Puaar
Published September 1, 2014 Financial News

The swap future will list on the Deutsche Börse-owned derivatives exchange today. US patent numbers listed on the product specification are assigned to Goldman Sachs, with managing director Oliver Frankel listed as the inventor.

The patents, which cover the “method and apparatus for listing and trading a futures contract that physically settles into a swap”, entitle Goldman Sachs to a share of the contract’s trading revenues. Stuart Heath, executive director at Eurex, said: “This is the first European product marrying exchange-traded derivatives and OTC products and we respect the efforts made by the market, especially looking forward to the first expiry/delivery in December. We expect participant numbers and volumes to grow steadily through Q4 and into 2015.”

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Banks' Pressure Stalls Opening of U.S. Derivatives Trading Platform

By Karen Brettell
Published August 27, 2014 Reuters

The first interdealer trading platform aimed at opening up credit derivatives markets to new competition has hit roadblocks due to resistance from some banks that dominate such trading, according to several people familiar with the situation.

Derivatives markets continue to revolve around the small group of dominant banks, and credit markets have become more - not less - concentrated since the 2008 global financial crisis.

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U.S. Bank Watchdogs to Adopt Liquidity, Margin Rules

By Douwe Miedema
Published August 27, 2012 Reuters

U.S. regulators will next week vote to adopt two major rules to reduce risks to banks, the Federal Reserve said, including a plan for them to hold enough easy-to-sell assets to survive a future financial crisis.

The regulators will also draw up rules for money that buyers and sellers need to set aside - known as margin - when trading swaps without the intervention of a clearing house, which acts like a middleman to make the deals safer.

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CDS Notional Continues Decline by 27%

By Beth Shah
Published August 26, 2014 Global Capital

ISDA reported that there was a 33% decrease in the notional cleared for CDS and 41% less executed on swap execution facilities, compared with the previous week. Rates also saw a decrease, with 18% less volume cleared, and 21% less executed on SEFs last week.

The total notional cleared only dropped to 74% in both asset classes, with a 6% drop in CDS, and 5% decline in rates. The total notional executed on SEFs also dropped in CDS and rates; 13% to 56%, and 5% to 47%, respectively.

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SEF Consolidation Likely as Volumes Slowly Increase

By Ivy Schmerken
Published August 21, 2014 Wall Street & Technology

It’s been a quiet summer for swap trading venues. SEF trading has been mandatory for many over-the-counter derivatives, mainly credit indexes and interest rates, since mid–February. Yet the transition from opaque voice trading to SEFs (swap execution facilities) has been evolving slowly.

While 21 SEFs, including big players and startups, have registered with the Commodity Futures Trading Commission (CFTC), analysts are predicting that a wave of consolidation may hit the sector over the next year.

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Fix and FpML: a Friendly War

By Peter Madigan
Published August 22, 2014 Risk.net

For most of their existence, the over-the-counter derivatives market's two standardised trading languages have been able to rub along quite nicely. Financial products markup language (FpML) – the junior of the two – was invented as a medium for the more complex messages required in the post-trade environment, while financial information exchange (Fix) conveys order information for a variety of products and asset classes. In other words, they served very different parts of the trade life cycle.

Not any more. The arrival of mandatory clearing in the US – coupled with the requirement to execute many of these trades on swap execution facilities (Sefs) – has created the need for a pre-trade clearing limit check, bringing post-trade functions into the pre-trade workflow. The separate worlds of Fix and FpML are colliding.

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ISDA Sets Argentina CDS Auction Date After Yen Bond Inclusion

By Davide Scigliuzzo and Christopher Whittall
Published August 21, 2014 Reuters

The International Swaps and Derivatives Association (ISDA) has set an action date of September 3 to settle Argentina's credit default swaps after including two controversial yen-denominated bonds in the list of deliverable securities.

In a 14-to-1 vote, members of ISDA's determinations committee decided Thursday to allow the yen bonds to be delivered in the auction that will determine the payout for the US$813m net notional of CDS, rejecting a challenge that they should be left out.

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