News

Dehydrated Bond Markets Face Up to Life Without Liquidity

By Owen Sanderson
January 4, 2016, GlobalCapital

Liquidity worries come in several flavors. Investors worry about buying and selling bonds in size. Dealers worry about dwindling volumes and rising costs.

Central bankers worry about raising rates, collapsing prices, and liquidity mismatches. For the primary markets, price formation is the problem, while securities regulators worry about the mispricing which a slow-moving and opaque market allegedly conceals. 

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SEC Adopts Rules Establishing Regime for Swap Data Warehouses

By Sarah N. Lynch
January 14, 2015, Reuters

U.S. securities regulators took another step toward shedding more light on the over-the-counter derivatives market Wednesday, adopting a raft of measures to give them a direct window into the opaque market.

The Securities and Exchange Commission's rules lay out a regulatory framework for "swap data repositories" like those operated by the Depository Trust & Clearing Corp, a specialized warehouse that collects trillions of dollars worth of swaps trades, shares it with regulators, and disseminates aggregated data to the public.

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ESMA’s RFQ Battle Could Hinder Trading

By Gabriel Surprise
January 14, 2015, GlobalCapital

The European Securities and Markets Authority’s lack of understanding on how request-for-quote and other trading protocols work is raising concerns among market participants. If ESMA imposes overly-constrictive transparency regulation on these technical systems, market participants may refrain from using them, according to lawyers.

“ESMA hasn’t yet addressed the level of technical systems…I think they’re still getting to grips with how they work actually in practice,” Damian Carolan, partner at Allen & Overy in London, told GlobalCapital. “These systems exist today for bond markets and to a certain 
extent derivatives markets, and they work well in a less liquid environment, and if you start imposing very specific and very prompt transparency obligations on those systems, they will cease to be used.”

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Knowledge Needed to Prevent Lehman Repeat

By Andrew Haldane, Aurel Schubert and Richard Berne 
January 14, 2015, Financial Times

When Lehman Brothers failed in 2008, it exposed faultlines in the global financial architecture. Many of those have since been recognised and progress made towards closing them, led by the Financial Stability Board under the auspices of the G20 heads of state.

One important but relatively less discussed of those faultlines was a lack of data. It was data gaps that made it nearly impossible for financial regulators and market participants to assess the scale of exposures to Lehman and to the network of Lehman-affiliated firms.

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SEFs Receive a 12-Month Documentation Reprieve

By Rob Daly
Published August 19, 2014 The Trade

Swap execution facility (SEF) operators are breathing a little easier as the Commodity Futures Trading Commission (CFTC), the US derivatives regulator, has given SEFs conditional relief from certain recordkeeping requirements relating to confirmations of uncleared swaps.

The CFTC’s Regulation 37.6(b) states that a SEF is to provide each counterparty to a transaction entered into on or pursuant to the rules of the SEF with a written record of all terms of transactions, which supersedes any previous agreement and serves as the confirmation of the transaction.

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Market Ready if CFTC Mandates Aussie IRS Clearing

By Aaron Woolner
Published August 18, 2014 Asia Risk

Australian market players convinced US regulators are poised to expand their clearing mandate to include Australian dollar interest rate swaps

A potential move by the US Commodity Futures Trading Commission (CFTC) to extend its clearing mandate to include Australian dollar interest rate swaps (IRS) would have little practical impact on the market given the amount of these instruments which are already centrally cleared, according to Marcus Robinson, Australia country head for LCH.Clearnet.

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Germany Finds Emir Enforcement Fix

By Fiona Maxwell
Published August 13, 2014 Risk

Derivatives users in Germany are set to face stricter supervision of their reporting obligations than their counterparts elsewhere, thanks to a unique system that turns external auditors into the eyes and ears of the regulator – and forces companies to pay for the new checks. Lawyers in other countries, including the UK, say it will be next-to-impossible for their own local authorities to enforce the new reporting rules, which came into force as part of the European Market Infrastructure Regulation (Emir) in February this year.

"The new law puts pressure on corporates to ensure they have a proper Emir process – previously, they weren't directly regulated," says Frank Müller, senior manager in the financial services division of KPMG in Germany, one of the firms that will be auditing Emir compliance.

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Once Powerful, Mary Jo White’s S.E.C. Is Seen as Sluggish and Ineffective

By Jesse Eisinger
Published August 13, 2014 New York Times DealBook

Mary Jo White took the helm of the Securities and Exchange Commission facing high hopes that she could turn around the once-proud agency. More than a year into her tenure, she has disappointed a wide swath of would-be allies.

Over the last several weeks, I’ve been talking to fellow regulators, administration officials, current and former S.E.C. staff members, financial reform advocates and people on Capitol Hill whose opinions of Ms. White’s performance range from dissatisfied to infuriated.

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New LME Clearing House Gets BoE 'Settlement Finality Designation'

By Andy Blamey
Published August 13, 2014 Platts

The London Metal Exchange's new clearing house, LME Clear, has received a designation order made by the Bank of England under the Financial Markets and Insolvency (Settlement Finality) Regulations 1999, the exchange said Wednesday.

The designation "relates to LME Clear's secure payment system, which covers payment activities regarding the collection, processing and return of cash and collateral between LME Clear members and the clearing house," the LME said. "All transfers, subject to certain conditions, are deemed final and therefore irrevocable, protecting clearing members, clients and LME Clear."

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Banks Push U.S. Fed to Delay Volcker Rule

By Kanika Sikka
Published August 12, 2014 Reuters

n">Banks are lobbying U.S. policy makers for a delay of up to seven years from a provision requiring them to sell investments in private-equity and venture-capital funds, the Wall Street Journal reported, citing people familiar with the matter.

Bank officials, trade groups and lawmakers are quietly pressing the Federal Reserve for a multiyear delay of the rule that limits their investments in private-equity and venture-capital funds, the Journal said.

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Regulatory Investments Begin to Turn the Corner

By Rob Daly
Published August 11, 2014 The Trade

Buy-side compliance expenditure will likely ease once regulators finish deploying major market reforms, such as Dodd-Frank, MIFID and EMIR, according to Matthew Gibbs, product manager at technology vendor Linedata, who believes recent reforms have changed internal compliance organisation permanently.

Gibbs dates changes in regulators’ behaviour to the eve of the global financial crisis.

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Libor to FX Cases Drive Surge in Teamwork With Regulators

By Suzi Ring
Published August 10, 2014 Bloomberg

Britain’s financial markets regulator saw requests for assistance from agencies around the world jump 14 percent last year as investigations are increasingly global, according to a law firm study.

The Financial Conduct Authority received more than 1,000 requests for help in 2013 and nearly one in four came from the U.S., London-based law firm RPC LLP said based on data obtained through a Freedom of Information Act disclosure.

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Japan Slams European Rules on Bilateral Swaps

By Viren Vaghela
Published August 11, 2014 Asia Risk

Stricter European rules governing margining of bilateral swaps will cause liquidity challenges and operational burdens that may ultimately force Japanese firms to eschew trades with European counterparts.

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Exchanges Defend European Data Fees

Published August 8, 2014 Markets Media

Exchanges have defended their market data fees in Europe to regulators despite complaints from fund managers that the charges are too high compared to the US.

In response to the consultation on the revised Markets in Financial Instruments Directive, which covers trading in the European Union, fund managers said market data fees in the region are too high in comparison to the US. Exchanges have defended their fees in their replies to the European Securities and Markets Authority. Esma published responses to the MiFID II proposals from firms that chose to make them public.

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ICE Targets Singapore Launch in Coming Months

By Joe Parsons
Published August 7, 2014 FOW

IntercontinentalExchange (ICE) is planning to launch its new Singapore-based exchange and clearing house in the next couple of months.

Speaking on an earnings call Jeffery Sprecher, chairman and chief executive of ICE, said the launch was on track with progress going well. 

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Bank Regulators Roar at $700-Trillion Market

By John Carney and David Reilly
Published August 6, 2014 Wall Street Journal

U.S. bank regulators have hit upon a novel way to herd cats.

In this case, the felines are some of the world's biggest banks and investment managers. And the regulators' approach to getting them to work together on big changes to derivatives has been to show who is king of the jungle.

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Swap Data Deadlock Could Be Fixed in Months, DTCC Hopes

By Tom Osborn
Published August 6, 2014 Risk

A clause in the Dodd-Frank Act that is preventing foreign regulators from accessing information held by US swap data repositories (SDRs) could be struck out in a matter of months, the Depository Trust and Clearing Corporation (DTCC) hopes. A bill that would do the job is waiting for consideration by the Senate once the upper house of the US Congress returns from its summer recess.

The problem clause, contained in Title VII of the act, requires foreign regulators to indemnify US SDRs against legal risk before regulators can be allowed to access their data. Though the clause was envisaged as a means of protecting SDRs from costly lawsuits if data was leaked or misused, no foreign regulator has been willing to face those liabilities, with the result that they cannot directly access data held in US SDRs more than a year after swap reporting rules took effect in the US.

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Banco Espírito Santo Ruled Not to Be in Bankruptcy Event

By Ben Edwards
Published August 6, 2014 Wall Street Journal

A panel of the International Swaps and Derivatives Association Wednesday ruled that the Portuguese central bank's decision to break up Banco Espírito Santo BES.LB -40.30%won't trigger a payout on insurance-like contracts linked to the stricken lender's debt.

ISDA was asked late Monday to rule whether the Portuguese Central Bank's decision to split BES into two would qualify as a so-called bankruptcy credit event, meaning that any contracts on BES debt—known as credit default swaps—would be activated.

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China FX Option Reform to Improve Corporate Risk Management

By Justin Lee
Published August 6, 2014 Asia Risk

The relaxation of regulations to allow Chinese corporates to sell foreign exchange options will lead to better risk management and is part of a wider liberalisation in the onshore options market as regulators move to introduce more hedging alternatives in the face of a more volatile renminbi, say dealers.

The yuan has depreciated by 2% against the US dollar this year and briefly touched 6.25 to the dollar in May. USD/CNY is currently trading at 6.17 as of August 6, following several years of almost continuous appreciation.

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CFTC Shows U.S. Commodity Manipulation Laws Have Teeth

By John Kemp
Published August 5, 2014 Reuters

By extracting a $13 million penalty and imposing tough restrictions on future oil trading by Arcadia and others, the U.S. Commodity Futures Trading Commission (CFTC) this week sent a powerful signal that laws against market manipulation still have teeth.

The case challenges a now famous view expressed in 1991 by commodities lawyer Jerry Markham that manipulation of commodity futures prices had become an unprosecutable crime. (“Manipulation of commodity futures prices: the unprosecutable crime”)

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