News

OCC Increases Liquidity Resources Via Repo Facility

By Beth Shah
January 21, 2015, GlobalCapital

The Options Clearing Corporation (OCC) has established a pre-funded $1bn committed repurchase facility with a leading pension fund in order to increase the central counterparty's overall liquidity resources from $2bn to $3bn. 

"We perform an ongoing analysis of our liquidity needs as a result of the tremendous growth in our markets. Based on certain trends we observed, we decided to raise our resources in order to facilitate this growth, thus ensuring we had sufficient capacity to meet the demands on...

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Banks Face Trade-off Tied to Credit-valuation Adjustment

By Lukas Becker
October 28, 2014 Risk

Banks are turning to credit swaptions and guarantees to reduce the earnings volatility that arises when hedging the credit valuation adjustment capital charge in Basel III.

Since late 2012, Deutsche Bank has lost €443 million euros on hedges that cut its capital requirement for derivatives counterparty exposure – a trade-off banks face because the regulatory and accounting definitions of credit valuation adjustment (CVA) are different, meaning regulators might see a hedge as effective, while accountants do not. That problem has prompted some institutions – and individuals – to look for ways to satisfy both sets of rules.

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CME's Sprague Warns About Failure to Settle Clearing Impasse

By Gregg Wirth
Published August 13, 2014 Traders Magazine

The turf war among regulators in the U.S. and Europe in the area of clearing of over-the-counter (OTC) derivatives has made central counterparties (CCPs) in those countries nervous about a mid-December deadline to reach regulatory equivalence. Among those CCPs is Chicago-based CME Clearing, which clears a large portion of euro/dollar interest rate swaps, and worries the industry could be impacted if an agreement isn't reached.

Traders spoke to Suzanne Sprague, executive director of collateral and risk for CME Clearing about the impasse, how to resolve it, and what it means for the clearing market.

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ESMA Releases List of Authorized Counterparties Outside the EU

By Andrew Saks-McLeod
Published August 12, 2014 LeapRate

As the European rulings on post-trade processing continue to take shape, the European Securities and Markets Authority has today published a list of central counterparties (CCPs) which are established in countries located outside the European Union and European economic area, that have applied for recognition under the European Union regulatory framework on OTC derivatives, CCPs and trade repositories in accordance with the European Market Infrastructure Regulation (EMIR).

The list comprises of thirty-eight executing venues, clearing houses, exchanges, diversified market places and depositories, which are located in various regions including Australia, the Asia Pacific, Israel, and North America.

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Central Counterparties Must Be More Transparent, Tabb Says

By John D'Antona, Jr.
Published August 4, 2014 Traders Magazine

With more trading and risk in the swaps market, clearinghouses should be more open and disclose their operating procedures for the benefit of the marketplace.

That's the viewpoint of market consultancy Tabb Group, which said in a recent report that the concentration of risk among central counterparties in the new global market structure must be accompanied by a proportional increase in transparency and reporting at the CCPs.

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CME Clearing Europe Approved as CCP

By Marina Daras
Published August 4, 2014 Waters Technology

The Chicago Mercantile Exchange Group's (CME) European clearinghouse, CME Clearing Europe, has received regulatory approval to operate as a central counterparty clearinghouse (CCP) in accordance with the European Market Infrastructure Regulation (Emir).

CME Clearing Europe handles a broad range of over-the-counter and exchange-traded derivatives, including interest-rate swaps, energy and commodities contracts, and foreign-exchange derivatives for clearing.

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Swaptions Clearing Proves Tall Order

By Christopher Whittall
Published July 19, 2014 IFR

Efforts from central counterparties to expand the range of rates products they clear are stalling amid growing industry concern that it could be dangerous to shoehorn more exotic derivatives into clearing houses.

While CCPs may soon launch clearing of inflation swaps, bringing the far larger swaptions market into the fold is proving a much tougher nut to crack. This has led to a difference of opinion between the two largest interest rate swap CCPs regarding how soon the product can begin to be cleared.

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CCP Switch Services Gain Traction

By Mike Kentz
Published July 21, 2014 IFR

Swaps brokers are looking to capitalise on growing market demand to reduce the margin costs associated with central clearing, by launching services that allow users to switch between derivatives clearing houses with greater ease. 

Tradition and GFI Group are both building out infrastructure to allow participants to seamlessly switch exposures across the two major swaps clearing houses, CME Group and LCH.Clearnet.

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Q&A: Jeanmarie Davis, Federal Reserve Bank of New York, on CCP Oversight

By Peter Madigan
Published July 18, 2014 Risk

The Federal Reserve Bank of New York plays a key role in the supervision of clearing houses and other new swap market players. Peter Madigan speaks to Jeanmarie Davis, head of the agency's financial market infrastructure function, about the challenges involved

A visit to the Federal Reserve Bank of New York in lower Manhattan is an odd and slightly intimidating experience – as it should be, perhaps. Resembling an imposing, sandstone fortress from the outside, entering the building involves passing through airport-style security, complete with ID checks, scans and stony-faced guards, before emerging into the windowless and featureless grey corridors that are a hallmark of most US government buildings.

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ICE Pushes CFTC for Extension of Cross-Border Margin Offsets

By Jon Watkins
Published July 15, 2014 The Trade

The Commodity Futures Trading Commission (CFTC) is considering a request from ICE Clear Europe to allow non-clearing members to benefit from cross-border margin offsets.

A petition filed by ICE builds on an existing order allowing its European central counterparty (CCP) to offer portfolio margining to its clearing members.

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Open Access Brings New Clearing Efficiencies

Published July 14, 2014 The Trade

How will forthcoming clearing regulations spur competition in Europe?

New regulations will dramatically change the clearing landscape across Europe. The MiFID II requires central counterparties (CCPs) to clear derivatives trades for any venue across the continent, known as the open access rule. The overhaul is in line with increasing transparency and competition within the derivatives market.

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Smaller Clearing Houses Push for Third-Country Equivalence

By Viren Vaghela
Published July 8, 2014 Asia Risk

Just four months ago Asia's smaller clearing houses – those in China, India and Korea – were like a series of unfinished stadiums in the lead-up to hosting a major international sporting event with the participants fretting about the risk of injury caused by playing in an incomplete infrastructure.

Dealers at foreign banks were expressing concerns about systems and processes not meeting international standards, the capital costs being punitive and a lack of recognition from European and US regulators. But to their credit Asia's central counterparties (CCPs) have confounded the naysayers and are ready for mandated clearing.

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Questions Remain Over US CCP Liquidity Rules

By Joe Rennison
Published July 8, 2014 Risk

Markets regulators will not require CCPs to have contractual liquidity commitments - but Fed is said to retain concerns and CCPs need approval from both camps

Recent rulemakings from US markets regulators have eased fears that central counterparties (CCPs) would be prevented from counting US Treasury collateral towards their liquidity reserves, but the issue may not have been completely settled, with the Federal Reserve said to have continuing concerns that it could be impossible under some circumstances to immediately liquidate large amounts of securities. CME Group has been waiting since December for both groups of regulators to approve its amended liquidity plans.

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Citi Paper Warns Hedge Funds on Collateral Management and Rising Financing Costs

Published July 1, 2014 COOConnect

Hedge funds must optimise the way in which they manage their collateral following reforms of the over-the-counter (OTC) derivatives markets while the cost of financing is going to rise exponentially in light of Basel III capital requirements, a new study from Citi Prime Finance has said.

There is widespread speculation that a collateral shortfall could emerge as more OTC derivatives are increasingly cleared through central counterparty clearing houses (CCPs) as mandated under Dodd-Frank in the US and the European Market Infrastructure Regulation (EMIR).

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Banks Look to Pass CCP Investment Losses to Clients

By Cecile Sourbes
Published June 30, 2014 Risk

Banks are seeking to pass through central counterparty (CCP)-related operational and investment losses to end-users, according to derivatives lawyers.

"A number of banks clearing at LCH.Clearnet's SwapClear came to us as they wanted to know whether the legal documentation they have with their clients is sufficiently broad to capture this sort of event. There could be an argument that it was but, basically, what we are providing is standard wording to make it clear they can pass those losses on to their clients," says one London-based derivatives partner.

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First JSCC-Cleared Swap Trade in Run Up to Official Clearing Requirement

Published June 25, 2014 FTSE Global Markets

Although electronic trading of yen swaps is not expected to be mandated in Japan until September 2015, institutional investors are starting to get ready for the implementation of these rules. The first electronically-traded and JSCC-cleared yen swap transaction by a Japanese bank has been executed. Bank of Tokyo-Mitsubishi UFJ Limited traded with Deutsche Bank AG, and used the Tradeweb “intention to clear” facility to send the trade to the Japan Securities Clearing Corporation (JSCC) for clearing.

Tradeweb clearing functionality allows swaps traders to choose, before a trade is executed, the clearing house and clearing member they would like to use to clear their trades. After each transaction is completed, details will be sent in real time to the selected CCP for clearing. This streamlines the entire trade workflow by reducing risk and improving operational efficiency.

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Default Fund Capital Will Halve Under Final Rule, Banks Say

By Matt Cameron
Published June 24, 2014 Risk

It has taken nearly four years, 82 comment letters, five different calculations, and a lot of handwringing and fretting, but the Basel Committee on Banking Supervision has finally produced a capital regime for exposures to central counterparty (CCP) default funds that banks believe will allow them to run the clearing business sustainably.

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Collateral Shortage Unlikely with Clearing, Says LSE/DTCC Paper

Published June 18, 2014 COOConnect

A collateral shortage is unlikely to materialise although firms could struggle to obtain collateral, according to a study by the London School of Economics (LSE), in conjunction with the Depository Trust & Clearing Corporation (DTCC). 

The paper – “The Economics of Collateral” – by Ronald Anderson and Karin Joeveer cautions market participants that access to collateral could be limited following implementation of mandatory clearing of over-the-counter (OTC) derivatives through central counterparty clearing houses (CCPs). This limited access to collateral, said the report, can be attributed to regional and product-focused market infrastructure, varying regulatory policies across markets, fragmentation at firm-levels and across local jurisdictions, and CCP product specialisation.

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EC to Snub US in First Wave of CCP Equivalence Decisions

By Lukas Becker
Published June 16, 2014 Risk

In a first wave of equivalence decisions, the EC is set to approve CCP rules in five countries – but the US will not be among them, and critics say Europe is using the regime as a bargaining tool

The European Commission (EC) is set to snub the US in its first round of approvals for foreign clearing house rules, arguing it does not yet have all the relevant rules in place. US regulatory and clearing sources claim the EC has put the decision on hold in an attempt to strong-arm the US into changing its rules on third-country CCPs.

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Overseas CCPs Weather the Storm

By Mike Kentz
Published June 14, 2014 IFR

The G-20 commitment to implement mandatory OTC derivatives clearing was originally thought to present sure-fire business opportunities for clearing houses and futures commission merchant banks alike.

But repeated curve-balls from regulators and clients have hampered clearers’ ability to rake in profits, with central counterparties such as LCH.Clearnet and CME Group now facing the possibility that the launch of their overseas operations could ultimately be seen as a costly failure.

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