News

E.U. Regulators Split Over Using Initial Margin to Resolve CCPs

By Cecile Sourbes
December 10, 2015, Risk

European regulators are divided over whether initial or variation margin should be haircut as a last-ditch measure to save a stricken central counterparty (CCP) – a choice that places the burden of bailing out a CCP on different users of the venue.

The debate is said by two sources with knowledge of the discussions to have held up long-awaited European Commission rules on recovery and resolution for clearing houses, which were originally expected to be published last month.

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Basel to Propose New Leverage Ratio Accounting for Cleared Derivatives

By Archie van Riemsdijk
December 4, 2015, The Wall Street Journal

International banking regulators will propose a new method for calculating the leverage ratios of banks, as requested by market participants, in a move that could provide relief for the global clearing industry.

The Basel Committee for Banking Supervision is set to allow its standardized approach for measuring counterparty credit risk exposures, or SA-CCR, for banks to calculate their derivatives exposure for the leverage ratio, people with knowledge of the discussions have told The Wall Street Journal.

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Comment: You'll Have to Save Yourself from Systemic Risk

By John Dizard
November 13, 2015, Financial Times

If you have had too much time on your hands lately, or if you were stuck in airports looking up at any screen available , you may have watched the US presidential candidates’ debates. Save your despair for later; this was the good, substantive part of the political process. It will only get worse.

We now have a bit over 14 months until a new president and Congress are sworn in. Until then, the national policymaking process will not be functioning. If a decision on financial laws or regulations has not been made yet, it will be on hold until early 2017.

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Comment: Too Much Regulation Creates Bank Brain Drain

By Edmund Parker and Mayank Gupta
October 18, 2015, Financial Times

Increasingly stringent banking regulations are changing how financial institutions of all shapes and sizes do business.

Tighter regulation is designed to improve standards, but one unintended consequence is the disincentivising of talented investment bankers. Many are now gravitating towards lighter-regulated, smaller finance houses and private equity and investment funds

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The Clearing House Takes Aim at CCP Risk Governance

By Matthew Stevens
September 29, 2015, Risk

Banks call for audit trails and a beefed-up role for risk committees.

The Clearing House – a New York-based group of 24 US banks – has criticized inconsistencies in the risk governance of central counterparties (CCPs) and called on regulators to impose tougher minimum standards.

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Comment: Frenemies at the Gate

By Joe Channer
August 18, 2015, Banking Technology

The sector is not renowned as a home for co-operation: competition is intense, the stakes high, and individualism rewarded. Yet the industry has recently seen a marked increase in collaborative ventures. The post-crisis environment, with regulations driving transparency, is forcing firms to focus resource on areas where there is less competitive advantage, such as risk management or reporting. As a result, fierce rivals are beginning to buck the trend, putting aside their differences to mutualise solutions to problems regulatory, logistical and technical. Consortiums, industry groups and open source projects abound.

Only last month, 13 major banks announced joint backing for an effort to create a utility to reduce disputes over the margin used in swaps trading. This comes soon after the world’s largest swaps dealers began discussions on the creation of an open source model for calculating margin for bilateral derivatives deals. Both moves are a direct response to new rules requiring dealers to post more margin in order to mitigate counterparty risk.

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Massad Reinforces CFTC’s Push for Margining Uncleared Swaps

By Eugene Grygo
July 28, 2015, FTF News

CFTC Chairman Timothy Massad says he will push for new rules to cover margin collection for uncleared swaps, and changes for clearinghouses, swaps dealers, SEFs and swaps data repositories.

Five years after the onset of the Dodd-Frank Act (DFA), CFTC Chairman Timothy G. Massad outlined last week the regulator’s next phase in the DFA rule-making process, which will include margin collection for uncleared swaps, stress tests for clearinghouses, a new definition of a swaps dealer, SEF trading improvements, and cross-border harmony for swaps data repositories (SDRs).

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Comment: Securitization Is Still Running on the Spot

By Owen Sanderson
June 16, 2015, GlobalCapital

Since the crisis, the European securitization market has been pleading unfair treatment. Being tarred with the same brush as US subprime meant the product has had to fight against a huge tide of regulation — and it still hasn’t made much difference.

As the European market gathers for its annual Global ABS conference, the bugbears of the conference are eerily familiar.

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Futures Brokers Feel Strain from Low Interest Rates and Red Tape

By Gregory Meyer and Philip Stafford 
April 12, 2015, Financial Times

The ranks of futures brokers are shrinking at a quickening pace as low interest rates and new financial regulations put severe strain on the middlemen of the $27tn listed derivatives markets.

Data from the Commodity Futures Trading Commission, the US derivatives regulator, shows the number of registered brokers — known as futures commission merchants — stood at 74 at the end of February. That is down from 91 a year earlier, and 189 in February 2005, and the US trend of accelerating industry concentration is a proxy for the global market because most big futures brokers have operations spread across the world.

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Clearing Members Propose Concessions

By Mike Kentz
February 21, 2015, IFR

Derivatives bankers have offered a major concession to global regulators in an effort to save a business they believe is being threatened by Basel leverage ratio requirements.

Major bank executives offered, at a Basel-convened meeting in London two weeks ago, to give up the right to reinvest the collateral their clients post to back derivative transactions if it means regulators will relax leverage ratio requirements.

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Hit the Floor: Banks Fear Basel Curbs for Capital Models

By Fiona Maxwell
February 4, 2015, Risk

One way for regulators to exert some control over too-disparate capital numbers is to apply a system of floors. Rules are in the works, but the big question is where they will be struck and what the effect will be. Industry critics are already warning of dire consequences. 

There are not many ways in which internal models are like sports cars, but plans to impose a floor on modelled capital numbers has brought some parallels to light. In effect, the floor is like a speed limit – a bank can drive as slowly as it likes, but if its models suggest it can safely put its foot down, the limit takes effect. And if that limit is too low, of course, a bank may as well trade in the sports car for something that requires less maintenance.

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Comment: Regulators Right to Cut Biggest Banks Down to Size

By John Gapper
January 7, 2015, Financial Times

Goldman Sachs caused a bit of a stir this week by issuing an analysts’ report suggesting JPMorgan Chase might want to break itself up. I believe in the independence of investment bank research as much as the next person, but it is hard not to notice that the major beneficiary of such a step would be Goldman Sachs.

That is not to say it is a bad idea. In fact, it may be a very good idea, possibly for JPMorgan’s shareholders, and definitely for society as a whole. It also suggests that the world’s banking regulators are steadily coming around to the idea of dismantling the largest banks with their own tools rather than relying on governments to do the right thing. If so, jolly good luck to them.

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Banks Face Basel Clampdown on Risk-Model Variation

By Boris Groendahl and Rebecca Christie
Published October 9, 2014 Bloomberg

Global regulators are preparing to narrow banks’ options for assessing credit risk in a bid to prevent the understatement of possible losses.

The Basel Committee on Banking Supervision will publish a report by early November on “excessive” variability in the models banks use to assign risk and measure capital needs, Secretary General Bill Coen said in an interview at the regulator’s headquarters in Basel, Switzerland. The document has been prepared for the Group of 20 nations.

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Barnier Hints at Longer Pensions Clearing Exemption

By Cecile Sourbes
Published September 12, 2014 Risk

The EC's head of internal markets, Michel Barnier, has hinted that the regulator will extend the pension funds derivatives clearing exemption beyond 2015

The European Commission's outgoing head of the internal market and services division, Michel Barnier, has hinted that the EC will extend the temporary exemption pension funds have from mandatory clearing of their over-the-counter derivatives trades beyond 2015.

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Banks Face More Oversight of Ability to Weather Credit Crunch

By Jesse Hamilton
Published September 3, 2014 Bloomberg

U.S. regulators, closing in on their mandate to force financial firms to prove they can weather another credit crisis, are set today to finish two key rules governing the banks’ balance sheets.

The Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. are ready to issue a mandate that banks set aside enough easy-to-sell assets to survive a 30-day liquidity drought and wrap up rules on how much loss-absorbing capital must be held against total assets.

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Banks Turn to Compression to Meet New Basel Rules

By Philip Stafford
Published March 31, 2014 Finanical Times

Until recently, the Basel III capital requirements had never been a central part of the post-crisis debate by the derivatives industry. No longer.

Banks’ concerns over a rule change introduced by the Basel Committee on Banking Supervision (BCBS) in January are deepening as they digest the implications for their large derivatives portfolios.

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Basel Leverage Ratio May Force CSA Restructuring

By Matt Cameron and Lukas Becker
Published January 14, 2014 Risk

Banks will only be allowed to reduce derivatives exposure with cash variation margin under the final Basel leverage ratio rules if it is in the same currency as the underlying swap. This, they claim, is a ridiculous hurdle, as it will force them to restructure their existing collateral agreements.

The rule could also deal a blow to the new standard credit support annex (SCSA).

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Non-Cleared Margin Proposals Still Miss the Point

By David Clark
Published February 22, 2013 The Trade

The latest approach by global regulators to establish a framework for margin payments against non-cleared swaps will eliminate some unnecessary costs but still fails to address the core concerns of banks.

A joint consultation last week from the International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS) proposed an exemption for initial margin payments on the first €50 million of bilateral swaps deals. Variation margin would need to be posted, based on the mark-to-market value of a trade on a daily 

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EBA to Rank Most-Liquid Securities for Hitting Basel Goal

By Ben Moshinsky
Published February 21, 2013 Bloomberg

Europe’s top banking regulator will start ranking financial assets in order of liquidity as it implements international rules to protect banks from a sudden loss of short-term funding.

The European Banking Authority will create a “scorecard” of asset liquidity, the agency said in an e-mailed statement, as part of requirements that banks hold a buffer of assets, known as the Liquidity Coverage Ratio, they can quickly sell to survive a 30-day credit squeeze.

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EU Said to Weigh Bank Debt Rule Delay in Blow to Basel Timetable

By Jim Brunsden
Published January 28, 2013 Bloomberg

The European Union is weighing a one-year delay to the deadline for lenders to disclose whether they meet a debt ratio, in the latest blow to the global timetable for applying Basel bank rules, according to three people familiar with the discussions.

EU nations may seek to push the start date for mandatory disclosure of this so-called leverage ratio from Jan. 1, 2015, to Jan. 1, 2016, said the people, who couldn’t be named because the talks are private. The revised date was discussed by diplomats at a meeting today, they said.

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