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US Bilateral Margin Rules: a Hit Parade of Horrors

By Fiona Maxwell
November 3, 2014 Risk

The introduction of mandatory bilateral margining may have seemed one of the simpler strands of the post-crisis reform agenda, but as it swings into focus, the market is starting to panic. Here are the 10 biggest gripes with the US version of the rules.

Rules requiring margin to be exchanged on non-cleared swaps have been in the works for three years and are not set to take effect until the end of 2015, but in August the industry made a plea for more time – around 18 months' more time.

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Fixed Income Trading Enters New Era

By Christopher Whittall
November 1, 2014 IFR

Banks are re-drawing the battle lines in fixed income trading, with firms taking radically different views on where profits can be made under the new regulatory regime in a division that has historically accounted for the lion’s share of investment banking revenues.

Fixed income has been under the cosh for the past two years in the face of soaring costs and dwindling revenues, forcing many banks to overhaul their cash and derivatives trading operations. Some have opted for nips and tucks, while others have lopped sizeable chunks off their rates and credit businesses and built out agency execution capabilities.

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Uncertainty Surrounds CFTC Footnote 513

By Ashley Lee
October 30, 2014 International Financial Law Review

The CFTC's no-action relief for yet another wide-reaching extraterritorial provision ends this year. The market is concerned that it will not be renewed.

Footnote 513 was included in the CFTC's 76-page cross-border guidance released in July 2013. It states that a US branch of a non-US swap dealer would be subject to transaction-level requirements without substituted compliance available.

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MACs Loom Large in Swaps Markets

October 29, 2014 Markets Media

The Securities Industry and Financial Markets Association’s market agreed coupon (MAC) product, launched in spring 2013, represents the standardization of certain swap contracts.

“Traditional par swaps with on-market rates won’t net or collapse into a single line item at the clearing house, but MAC swaps, by virtue of standardized dates and a fixed, standardized rate, are fungible and will collapse into a single line item at the clearing house,” Elisabeth Kirby, director of rates strategy at Tradeweb, told Markets Media.

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Swap Market Fears CFTC Deadline

By Mike Kentz
October 27, 2014 IFR

An upcoming US regulatory deadline is distressing swaps users as execution platforms say they will not be able to offer transactions pairing interest rate swaps with certain other derivatives following the cut-off.

Following a roll-off of regulatory relief on November 15, traders hoping to package US Treasury futures, corporate bonds, credit options, mortgage-backed securities, interest rate options, and equity total return swaps with a comparable or offsetting vanilla interest rate swap will likely find themselves with no place to trade.

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Pact Raises Caution Flag on Swaps

By Rick Baert
October 27, 2014 Pension&Investments

Asset owners that use swaps could ultimately face losses and added risk as a result of an agreement among 18 major global banks.

The Oct. 11 agreement to a protocol introduced by the International Swaps and Derivatives Association allows the banks to delay the wind-down of swaps when one of the parties is in financial stress. It will apply to new and existing cross-border agreements among the 18 banks, which together have more than 90% of outstanding notional derivatives worldwide

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Investors Have ‘No Incentive’ to Use Swap Futures, Says Wallin

By Kris Devasabai
Published October 21, 2014 Risk

"If we were short of collateral, we would consider a futurised interest rate swap - but we're not," says Alliance Bernstein's Wallin

So-called real money investors have "no incentive" to ditch over-the-counter derivatives in favour of swap futures unless they face serious collateral constraints, according to James Wallin, a senior vice-president at Alliance Bernstein.

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JSCC to Gain DCO Status from US Regulator Before Year-end

By Viren Vaghela
October 17, 2014 Risk

Japanese clearing house will soon be able to clear for US clients, attendees hear at a recent event where the CFTC's outgoing policy chief spoke

The Japan Securities Clearing Corporation (JSCC) is poised to become the second Asia clearing house to be awarded derivatives clearing organisation (DCO) status, with the outgoing director of the clearing and risk division at the US swaps regulator, Ananda Radhakrishnan, telling the audience at a recent event in Tokyo that he could see no issues with the entity being granted a licence.

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British Banks Award Only 38 Percent from Mis-sold Swaps Refund Pot

By Matt Scuffham
Published October 8, 2014 Reuters

Britain's biggest banks have paid out less than 40 percent of the 4 billion pounds ($6.4 billion) set aside to cover the mis-selling of complex interest rate hedging products, according to data from the financial regulator.

The Financial Conduct Authority (FCA) last year ordered banks to review 29,500 cases for possible mis-selling after finding "serious failings" in how interest rate swaps were sold.

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Market Agrees Protocol to Slow Close-out of Positions in Failing Banks

By Hazel Sheffield
October 13, 2014 GlobalCapital

A slew of major global banks have agreed to sign a protocol by the International Swaps and Derivatives Association that imposes a stay on cross-default and major termination rights within standard ISDA derivatives contracts if a counterparty defaults.

Goldman Sachs, JPMorgan, Deutsche Bank and BNP Paribas are among the 18 banks to sign the protocol, which updates the existing ISDA Master Agreement to incorporate contractual stays on cross-default rights that apply in the US bankruptcy code and other close-out regimes. This means that adhering counterparties can opt into certain overseas resolution regimes through the change in their contract.

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