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SEF ‘Packages’ Almost Wrapped Up

March 3, 2015, Markets Media

Institutional investors and large non-financial companies that trade swaps are rarely one-off users; rather, they’re in the market regularly as part of enterprise-wide hedging or speculative programs. To optimize efficiency, packaging trades into a single transaction can be indicated.

As swap execution facilities have developed since the industry’s Oct. 2013 start date, so-called package trades have been an area of uncertainty, as the phased approach implemented by regulators has meant that at times, certain swaps had to be traded on SEFs when others didn’t.

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Uncleared Swaps Trading Unfeasible Under New Margin Proposals

By Gabriel Suprise
March 3, 2015, GlobalCapital

Proposals put forward by the Commodity Futures Trading Commission and a coalition of five US prudential regulators for uncleared swaps transactions will impose new margin requirements, collateral allocation restrictions and jurisdictional regulatory differences which could make trading uncleared swaps in the US a costly and potentially ineffective strategy. The new proposals could also drive business away from the US towards other jurisdictions such as Europe and other overseas markets.

“There should be, and there is, a substantial congruence between the European proposals and the US proposals,” James Schwartz, of counsel at Morrison Foerster in New York, told GlobalCapital. “There are, however, distinctions between the US proposals and both the [Basel Committee on Banking Supervision/International Organization of Securities Commissions] Framework and the proposed EU margin rules, most significantly the fact that “materials swaps exposure” is defined as a much lower amount in the US proposals. To the extent that, as a result of that difference or others, the US rules are materially more stringent than those adopted elsewhere, one would expect entities with an opportunity to avoid dealing with the US rules to transact swaps with counterparties in other jurisdictions.”

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Analysis: Has LCH.Clearnet Saved Nasdaq NLX?

By Luke Jeffs and Cian Burke
March 3, 2015, FOW

Nasdaq NLX was tellingly the first exchange to welcome LCH.Clearnet's pledge it will finally support portfolio margining. 

The pledge by LCH.Clearnet's swaps clearing unit that it will offer an esoteric service called portfolio margining may have been a long-time coming but it couldn't have come soon enough for one European exchange. 

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U.S. Set to Raise Swaps Requirements

By Philip Stafford
February 26, 2015, Financial Times

The new head of the main US derivatives regulator has signalled a willingness to break from the agency’s recent past and harmonise swaps rules with Europe and Japan to help police the vast $700tn global derivatives market.

Timothy Massad, chairman of the US Commodity Futures Trading Commission, told an audience of derivatives users on Thursday he was looking at raising the margin requirements for rarely traded swaps, so that US rules were consistent with overseas jurisdictions.

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SEFs: A Progress Report

February 26, 2015, Markets Media

For a business that’s all of 16 months old, swap execution facilities have made steady progress in establishing themselves as viable trading venues.

In December, weekly volume in interest-rate swaps was reported as high as $970 billion, while credit swaps weighed in at $236 billion, according to the FIA SEF Tracker released in early February. While that represents only a small fraction of a global swap market whose size is estimated at $600 to $700 trillion, SEF operators and observers note that trading volumes have increased from $0 as of Oct. 1, 2013, the day before the first SEFs commenced operations.

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SocGen Buys Stake in Trading Platform

By Philip Stafford
February 17, 2015, Financial Times

Société Générale has bought a minority stake in a UK start-up trading platform in a move that underlines how banks are exploring hybrid fixed income derivatives to ease their capital requirements.

The French bank has followed Deutsche Börse in buying an undisclosed stake in Global Markets Exchange Group and will provide execution and clearing services for its clients when the London-based venue goes live in the second quarter.

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CFTC to Propose Swaps Anonymity

By Katy Burne
February 16, 2015, The Wall Street Journal

U.S. regulators are poised to introduce measures that would ensure anonymity for traders in the $700 trillion market for swaps, said people familiar with the discussions, a flip-flop that would hand a victory to hedge funds and speedy trading firms while dealing a blow to banks.

The planned action from the Commodity Futures Trading Commission would encourage trading among any and all market participants, mirroring futures markets that the agency also oversees, and would raise the chance of traders dealing directly with one another, potentially bypassing banks that have historically been major providers for these complex transactions, the people said.

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New Rules on Bank Capital, Swaps Clearing Set to Clash

By Andrew Ackerman
February 12, 2015, The Wall Street Journal

A new rule requiring banks to hold extra capital against all the assets on their books may have the unintended effect of undermining a central plank of the 2010 Dodd-Frank law aimed at boosting the safety of the multitrillion-dollar swaps market, a top regulator warned Thursday.

Commodity Futures Trading Commission Chairman Timothy Massad , testifying on Capitol Hill, said he is concerned the rule would make it more expensive for banks to route swaps through clearinghouses, hindering a Dodd-Frank mandate that most swaps be cleared. Clearinghouses, the market plumbing seen as a key safety procedure for the financial system, take fees to guarantee swaps.

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CFTC Close to ‘Game-Changing’ Guidance on SEF Anonymity

By Joe Rennison
February 11, 2015, Risk

Agency could prevent Sefs from revealing identities of order book participants - a practice some buy-side firms claim is a way of preserving dealer interests.

The Commodity Futures Trading Commission (CFTC) is close to finalising guidance that could require parties trading on swap execution facilities (Sefs) to remain anonymous, according to three industry sources – a move one describes as a "game changer".

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SEC Officials Blast Agency Over Clerical Error on Swaps Rulemaking

By Sarah N. Lynch
February 11, 2015, Reuters

U.S. securities regulators failed to consider a comment letter from a key derivatives trade group before adopting new swaps data reporting rules last month, prompting criticism on Wednesday from the agency's two top Republicans.

The failure to review the letter was due to an inadvertent clerical error, but in a joint statement, Securities and Exchange Commission Republican members Daniel Gallagher and Michael Piwowar said they felt the mistake warranted the need to re-open the rule for public comment.

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