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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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Isda Hoping to Detoxify Derivatives

By Lukas Becker
Published April 9, 2014 Risk

The International Swaps and Derivatives Association wants to change public perceptions of over-the-counter derivatives by highlighting the value of the products to the wider economy. That message got a lot of airtime on day one of the association's annual meeting in Munich yesterday, generating discussion among delegates, some of whom saw it as evidence of a sell-side confidence crisis, while others argued it was a long-overdue attempt to stem unfair attacks.

Speaking to reporters at a mid-morning briefing, Isda chairman Stephen O'Connor – who quoted actor Shia LaBeouf in his opening remarks as an example of widespread, and inaccurate, criticisms of the OTC market – explained the motivations. 

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Growth Threatened in $693 Trillion Derivatives Review

By Abigail Moses
Published April 9, 2014 Bloomberg

Global regulators’ failure to align efforts to reform the $693 trillion derivatives market threatens to undermine economic growth, according to the International Swaps & Derivatives Association.

Investors are struggling to adapt to regional differences to changes agreed by the Group of 20 nations as the industry meets for its annual conference in Munich today. In the U.S. traders have been reporting derivatives transactions to data repositories and have been required to have central clearinghouses back their contracts since last year, while European regulators are still defining the requirements.

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Derivative Risk to Financial System Seen Easing in ISDA Survey

By John Glover
Published April 8, 2014 Bloomberg

The threat posed to financial markets by derivatives has been curbed by regulators even as costs for investors have increased, according to an industry survey.

More than 57 percent of those questioned by the International Swaps & Derivatives Association said the system is on a sounder footing than it was before the financial crisis. That improvement has brought with it more red tape, as well as greater expense, according to respondents, of which 42 percent were non-financial corporates, almost 30 percent were banks and 20 percent asset managers.

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Swap Market Unmoved by SEF Rules

By Anish Puaar
Published April 8, 2014 Financial News

The first months of new US rules for the OTC derivatives markets have not caused the slump in liquidity that many expected, according to new research from JP Morgan.

In a research note looking at flows and liquidity in the six months since the introduction of new US venues for trading swaps, JP Morgan analysts found that the value of trades in interest rate swaps – which make up the largest proportion of OTC derivatives trading – had actually increased after an initial slump.

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Thirteen Banks to Fight EU Derivatives Charges at May Hearing: Sources

By Foo Yun Chee
Published April 7, 2014 Reuters

Thirteen investment banks, including Citigroup, Goldman Sachs and Deutsche Bank, will fight EU charges of blocking exchanges' access to the credit derivatives market at a hearing next month, three people familiar with the matter said on Monday.

The closed-door hearing comes nine months after the European Commission accused the banks of preventing Deutsche Boerse and the Chicago Mercantile Exchange from entering the lucrative credit default swaps (CDS) business between 2006 and 2009.

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U.S. House Panel to Vote on Swaps Regulator Mandate

By Douwe Miedema
Published April 8, 2014 Reuters

U.S. lawmakers on Monday launched a bill to rewrite the rules of of the Commodity Futures Trading Commission (CFTC), giving more leeway to smaller players in the derivative markets it oversees.

The agency became one of the most prolific reformers of Wall Street after the financial crisis under its previous chairman, Gary Gensler, who was frequently criticised by some in the financial industry for his hard-nosed style and sometimes-hasty adoption of new rules.

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CDS Trades Jump on SEFs

By Richard Henderson
Published April 4, 2014 The Trade

Credit default swaps (CDS) traded on swap execution facilities (SEFs) grew 75% from January to April, according to data compiled by the International Swaps and Derivatives Association (ISDA), while rate swaps have seen little growth.

In March, 8,198 CDS trades were executed on SEFs, up 74.1% from January’s total of 5,112 trades. The highest daily trading value was on 13 March, with 566 trades worth US$17.8 executed on SEFs. The data includes all US dollar CDS product types executed on SEFs across all tenors.

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Esma Set to Neuter Emir Frontloading Rule

By Matt Cameron, Fiona Maxwell
Published April 4, 2014 Risk

European legislators have agreed to sideline the so-called frontloading provisions of Europe's swap clearing rules, according to members of the European Parliament (MEPs) who took part in crunch talks in Brussels yesterday. A formal letter outlining the plans is now expected to be sent by the European Securities and Markets Authority (Esma) to the European Commission (EC) – the other two participants in the three-way meeting.

Frontloading requires outstanding swaps to be cleared if they belong to a product class that is later mandated for clearing, which is a problem because cleared and non-cleared swaps are subject to very different cost structures, and could therefore have been mispriced at inception.

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Frontloading Requirement Bedevils Swaps Pricing

By Christopher Whittall
Published April 2, 2014 IFR

Major derivatives dealers are struggling to price interest rate swaps under an uncertain European regulatory regime, which began its countdown towards mandatory central clearing for over-the-counter derivatives last month.

Nasdaq OMX fired the starting pistol for European clearing on March 18 after it was the first to be given the green light from European regulators to operate as a central counterparty

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