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Wall Street Faces New U.S. Scrutiny of Derivatives Tactic

By Silla Brush
Published July 30, 2014 Bloomberg

Wall Street banks face heightened scrutiny from the Commodity Futures Trading Commission over their latest tactic to escape U.S. trading rules for overseas derivatives.

The regulator sent letters today toJPMorgan Chase & Co. (JPM),Goldman Sachs Group Inc. (GS), Bank of America Corp., Citigroup Inc. (C), and Morgan Stanley (MS) seeking further information about the practice of removing parent-company guarantees from overseas trades. An agency official who asked not to be named because the letters aren’t public confirmed that they were sent to the banks.

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CFTC Says Flexibility Vital to Oversee Cross-Border Swaps

By Andrew Zajac and Silla Brush
Published July 31, 2014 Bloomberg

U.S. regulators need flexibility in overseeing cross-border swaps, a lawyer for the Commodity Futures Trading Commission told a federal judge as he defended the agency’s reliance on guidance rather than formal rules in a lawsuit brought by Wall Street’s largest lobbying groups.

Congress directed the CFTC to regulate overseas trading of swaps to prevent a catastrophic market failure like the one involving American International Group Inc. (AIG) in 2008, Robert Schwartz, a lawyer for the agency, said at a hearing in federal court in Washington.

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EU Clearing Timeline Could Drive Banks Out of the Business

By Cecile Sourbes
Published July 29, 2014 Risk

Banks could be forced to close their European swaps clearing businesses, critics claim, after regulators proposed a timeline that would only force prospective clients to start clearing at some point in 2016. Many institutions built their business on the expectation that client clearing would take off in 2015, or even this year.

"We have all wasted money building that business. We are making some revenues in the US now but revenues in Europe are negligible because there are only a few early clients who are clearing. Over time, we will still need to invest in that business but we won't be able to meet our revenue targets," says one head of over-the-counter derivatives clearing at a European investment bank based in London.

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Futures Regulator O'Malia to Be Swaps Group Chief

By Scott Patterson
Published July 23, 2014 Wall Street Journal

A departing Republican futures regulator will take the helm of a major Wall Street trade group in August.

Republican Scott O'Malia of the Commodity Futures Trading Commission will become chief executive of the International Swaps and Derivatives Association Inc., a multinational group of institutions known for pushing back against federal regulation of swaps trading.

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Global Watchdogs Seek End to Tainted Benchmark Guessing-Game

By Jim Brunsden and Ben Moshinsky
Published July 22, 2014 Bloomberg

Global regulators set out plans to overhaul the way key financial benchmarks are calculated as they try to re-establish confidence in key market rates tarnished by manipulation scandals.

The Financial Stability Board said rates, particularly those such as Libor used to calculate interest rates, should be “to the greatest extent possible” based on actual trade data rather than employees’ estimates, according to a statement published on its website today. The FSB, which consists of regulators and central bankers from around the world, also called for the development of alternative benchmarks.

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CFTC’s Scott O’Malia to Resign From U.S. Swaps Regulator

By Silla Brush
Published July 21, 2014 Bloomberg

Scott O’Malia, a Republican who used his position on the Commodity Futures Trading Commission to criticize some of the agency’s efforts to rein in the $700 trillion global swaps market, said he will resign next month.

O’Malia, 46, the longest-serving member of the current CFTC panel, will step down effective Aug. 8 after more than four years at the agency, he said in a letter released today.

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Wall Street Adapts to New Regulatory Regime

By Victoria McGrane and Julie Steinberg
Published July 21, 2014 Wall Street Journal

Four years after the Dodd-Frank financial law became reality, Washington's regulatory machine is altering Wall Street in fundamental ways.

Banks are selling off profitable business lines, pulling back from the short-term funding market, cutting ties with businesses that could attract extra regulatory scrutiny, and building up defenses to help weather future crises. While profits are up as firms slash costs and reduce funds set aside to cover future losses, their traditional profit engine—trading—is showing signs of weakening as banks step away from some activity amid regulatory pressure.

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US Regulators Urged to Accept Dealers' Use of Affiliates

By Peter Madigan
Published July 18, 2014 Risk

Politicians and regulators in the US should learn to live with the fact that US banks are funnelling a large portion of their overseas swaps business through non-guaranteed affiliates (NGAs), according to two former senior regulators. Potential responses to the strategy – which insulates the affiliates and their non-US customers from the Dodd-Frank Act – could set the US on a collision course with foreign officials, they argue.

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Hong Kong Regulators Seek Industry Input on Derivatives

By Michelle Price
Published July 18, 2014 Reuters

Hong Kong moved one step closer to implementing the G20 post-crisis reform agenda on Friday with the publication of a long-awaited consultation on the treatment of derivatives trades.

The paper, jointly-issued by the Hong Kong Monetary Authority (HKMA), the city's de facto central bank, and the Securities and Futures Commission (SFC), will help establish detailed rules on how information relating to privately-negotiated derivatives trades are reported to the regulators.

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Trade Reporting Fines on the Horizon

By Jon Watkins
Published July 17, 2014 The Trade

Regulators are set to clamp down on widespread trade reporting breaches across Europe as a six-month grace period since the rules were introduced expires, according to industry sources.

Issues surrounding unique trade identifiers (UTIs), legal entity identifiers (LEIs) and the complexity of the 85 fields required by regulators have plagued the process from the outset.

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