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SEF Rules Inhibit Cross-Border Trades

Published April 16, 2014 Markets Media

Recent regulatory rulings have resulted in a shift in trading in euro- and U.S. dollar-denominated interest rate swaps. The Commodity Futures Trading Commission, through its MAT (made-available-to-trade) determinations and its recent tightening up of rules regarding European MTFs (multilateral trading facilities), is causing overseas swap market participants to think twice about entering the murky water of SEFs.

The CFTC has clarified the conditions that EU-regulated multilateral trading facilities (MTFs), must fulfill in order be granted relief from SEF requirements for transactions involving U.S. persons. An MTF must report all swap transactions to a Commission-registered or provisionally-registered swap data repository as if it were a SEF, in compliance with parts 43 and 45 of the Commission’s Regulations. Qualifying MTFs must also submit monthly reports to CFTC staff summarizing levels of participation and volume by U.S. persons.

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Covered Bond Issuers Cheer EU Swaps Margin Relief

By Matt Cameron
Published April 16, 2014 Risk

Issuers of covered bonds have welcomed European proposals that would exempt them from the need to collateralise non-cleared swaps – a safe harbour that international regulators did not include in their own standards on bilateral margining that were finalised last year.

"This is a good thing for the industry. It acknowledges the special status of covered bonds and the problems pools have with posting collateral. So this proposal gives the market clarity and is a move in the right direction," says Ralf Grossman, head of covered bond origination at Societe Generale Corporate & Investment Banking in Frankfurt.

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ICE to Clear European Sovereign CDS

By Christopher Whittall
Published April 14, 2014 IFR

The IntercontinentalExchange will begin clearing Western European sovereign credit default swaps later this month after receiving the green light from regulators.

Contracts referencing CDS on Italy – the most heavily traded European contracts – Ireland, Portugal and Spain will begin clearing on April 28. The exchange has not announced plans to clear CDS on Germany and France, the second and third most liquid European contracts.

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Trade Reporting Delayed in Canada

Published April 14, 2014 The Trade

Canadian regulators have extended a deadline to report OTC derivatives trade reporting until 20 June 2015 for buy-side firms.

Trade reporting was meant to commence on 2 July for clearing agencies and dealers. This has also been extended to 31 October this year by the Canadian Securities Administrators (CSA), the council of the securities regulators of Canada's provinces and territories. All other market participants were set to report from 30 June 2015.

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Swaps Resolution Expected Ahead of G-20

By Helen Bartholomew
Published April 12, 2014 IFR

Regulatory efforts to tackle the “too big to fail” issue could be nearing a conclusion as legal impediments surrounding swap termination rights that have been hampering a cross-border resolution regime for financial institutions look set be resolved in the coming months, eradicating the threat of future taxpayer bailouts.

According to Elke Koenig, president of Germany’s Federal Financial Supervisory Authority, BaFin, the Financial Stability Board is on track to present proposals to global leaders for an international approach to a temporary stay on OTC derivatives contracts for a failed counterparty – a long-standing obstacle to a global resolution regime.

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New Bill Wades Into CFTC Overreach Debate

By Richard Henderson
Published April 11, 2014 The Trade

The Commodity Futures Trading Commission (CFTC) may be limited in its ability to enforce new swaps rules if a bill that has gained early support in the US House of Representatives is passed.

The Customer Protection and End-User Relief Act on Wednesday was approved by the US House Agriculture Committee with bipartisan support and may face a full vote on the House floor.

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ISDA AGM: RFQ Dominates SEF Execution

By Helen Bartholomew
Published April 10, 2014 IFR

A regulatory-driven overhaul in the way that over-the-counter derivatives are traded has seen much of the US$693trn swaps market cleared through central counterparties and standardised contracts traded over newly-created swap execution facilities. But the rise of new platforms for trading swaps remains some way from the exchange-like model that regulators may have envisaged, with client and dealer preferences veering firmly towards the “request for quote” model that has always prevailed in OTC markets.

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Traders Warn on Deadline for New Swaps Rules

By Philip Stafford
Published April 10, 2014 Financial Times

Swaps dealers have warned a mid-May deadline forcing them to comply with new US rules for over-the-counter trading remains tight, even after a US regulator clarified its positions on some key issues.

The Commodity Futures Trading Commission said late on Wednesday that venues trading US products, and customers in Europe will be required to report trades to US data repositories. They will also provide US officials with monthly reports on the activity of their US customers.

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Derivatives Rules Softened in Victory for Banks

By Matthew Leising
Published April 10, 2014 Bloomberg

In a victory for banks, global financial regulators revised rules governing how much money must be set aside to cover losses by swaps traders, backing away from guidelines that firms warned would destabilize the $693 trillion derivatives market.

The Basel Committee on Banking Supervision’s final rule, released today, would require swaps dealers to hold less cash to protect against defaults than did a proposal published last year. The plan now applies a minimum 20 percent risk weighting to money deposited at clearinghouses, which are third parties that guarantee the transactions, down from 1,250 percent in the original proposal. The change takes effect on Jan. 1, 2017.

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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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