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End Users Face Swap Margin Requirements

November 11, 2014, Markets Media

The issue of margin for non-cleared derivatives is a contentious one for swap-market participants.

Although hedge funds are generally subject to both initial and variation margin, non-financial end users are faced with the prospect of having to post margin for the first time.

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Comment: Flawed U.S. Rules Fragment Swaps Market

By J. Christopher Giancarlo
November 10, 2014, Financial Times

Over the past several decades, regional and national markets for financial products have expanded into a truly global marketplace benefiting economies around the world.

This expansion has included trading markets for derivatives products such as swaps, futures and options that promote price stabilisation for everyday goods like groceries, gasoline and winter heating fuel.

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U.S. CFTC Pushes Back Electronic Trading Mandates for Some Swaps

By Karen Brettell
November 5, 2014, Reuters

The Commodity Futures Trading Commission will push back a deadline to require that more swaps trade on electronic trading platforms, to give market participants more time to prepare, the agency's chairman said on Wednesday.

The CFTC was due to require swaps that are packaged with other uncleared swaps or with other securities, such as Treasuries, to trade on mandated electronic venues from Nov. 15, but investors have said that more time is needed to develop technology and processes.

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MAC Launches Bridge Swaps Gap

By Mike Kentz
November 1, 2014 IFR

A regulatory struggle to transform the trading infrastructure for over-the-counter swaps may be on the cusp of a big leap towards the exchange-like regime envisioned under Dodd-Frank regulations. Several segments of the market are poised to coalesce around a new standardised swaps contract – known as a Market-Agreed Coupon or “MAC” swap – within an order book framework that more closely resembles exchange trading.

GFI Group, an inter-dealer broker and swap execution facility operator, is set to introduce MAC trading on a central limit order book (or CLOB) with a set of dedicated liquidity providers in the next two weeks, according to sources. Javelin Capital Markets, another SEF, expects to introduce a similar offering by year-end.

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Swap Transaction Costs Remain a Mystery

By Mike Kentz
November 1, 2014 IFR

Four years on from Dodd-Frank derivatives reforms being signed into federal law, transaction costs for over-the-counter swaps remain a mystery to the market.

Participants are now forced to electronically execute, clear and report a wide range of swaps contracts – a full reversal from the days when bilateral negotiation was the norm.

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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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