News

Trans-Atlantic Swaps Rift Spurs U.S. Market-Damage Concerns

By Silla Brush
June 13, 2016, Bloomberg

The European Union’s decision to postpone collateral rules for swaps is putting pressure on U.S. regulators to follow suit to avoid rupturing the $493 trillion market dominated by the world’s biggest banks.

The European Commission, the E.U.’s executive arm, said last week it won’t be able to meet a September deadline set by the U.S. – and laid out as goal by global regulators – for standards that seek to ensure banks have sufficient collateral to backstop transactions done directly with other traders. Europe plans to complete the regulations by year-end, though they may not take effect until mid-2017, according to the commission in Brussels.

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U.S., E.U. Uncleared Margin Rules "Impossible" for Asia

By Aaron Woolner
June 10, 2016, Risk

U.S. and European regulators' insistence on next-day settlement of variation margin under their implementations of the looming framework for uncleared margin rules will make the rules "practically impossible to meet" for Asia Pacific banks, according to an executive from Mizuho bank.

"This is an industry-wide concern that affects U.S. and European banks, as well as those in Japan and the rest of APAC. In the case that we can't find a solution we may face market fragmentation and declining liquidity," said Kuzumi Ishiwa, head of counterparty risk and collateral management in Mizuho's asset and liability management department.

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SEC Approves 'Negative Affirmation' Rule

By Mike Kentz
June 11, 2016, IFR

The Securities and Exchange Commission has included language in a rule-making finalized last week that some market participants say undermines the point of the entire rule-making itself.

The SEC will allow firms transacting in security-based swaps to comply with a new rule governing trade affirmation procedures via a process known as “negative affirmation”. Under the new rule, when one firm reaches out to another to confirm trade details but does not receive a response, the trade is still considered “affirmed” and is pushed through.

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Liquidity Issues Hit Migration to Listed Derivatives

By Joe Parsons
June 10, 2016, The Trade

A lack of liquidity providers in the swaps futures space has prevented any real pick-up in volumes, according to industry experts.

With the migration of bilateral OTC derivatives into the listed futureised world, experts at this year’s FIA IDX conference in London argued there are still a number of barriers for exchanges to overcome before volumes in these products take off.

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Regulators to Banks: We’ll Size Up Your Risks

By Donna Borak
June 12, 2016, The Wall Street Journal

International regulators want to limit banks’ leeway in assessing the riskiness of their assets, a step that critics say could crimp lending, dent profits and worsen risk rather than reduce it.

A committee of overseers in Basel, Switzerland, since the end of last year has proposed five different rules that would require banks to use standardized calculations instead of their own when measuring possible losses on everything from loans to interest rates to fraud.

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House Committee Moves to Cut Funding for Financial Regulators

By Lisa Lambert
June 9, 2016, Reuters

A bill to slash funding for the U.S. Securities and Exchange Commission, Internal Revenue Service and other financial regulators passed a key committee in the U.S. House of Representatives on Thursday after a long partisan fight.

The expansive legislation would also place a halt on the payday lending restrictions that the Consumer Financial Protection Bureau recently proposed.

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SIFMA Launches Onboarding Package for Buy-Side

By Julie Aelbrecht
June 10, 2016, FOW

Banking and broking trade body the Securities Industry and Financial Markets Association (SIFMA) has launched a template to help asset management firms onboard clients.

SIFMA's Asset Management Group has made available the new template client document that asset management firms can use to comply with new informational and disclosure obligations required to on­board clients for derivatives transactions.

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Comment: Fintech Disruption: The Changing Role of Regulators

By Allan D. Grody
June 9, 2016, FOW

Trapped by still functioning legacy systems and industry infrastructure institutions, the legacy mindset embedded in financial institutions may be providing the opportunity for Fintech companies to sweep past them. Regulators are becoming enablers.

The 'industry’ has long informed regulators as to how to improve markets by invoking the principle of 'best practices’. At the same time regulators have gone along with these best practices by accepting the principle of an industry’s 'consensus’ approval. The two principles, best practices and consensus approval has long been the way regulators obtained input from the industry and made decisions as to what regulations to implement. Incremental change was thought to be the best way forward. Then the financial crisis came along and regulators were forced to step out of their comfortable 'go along with the industry’ mode. In fact the industry, bounded in the past by sovereign regulation, was now forced to consider itself as the unbounded 'global financial industry’. This change was most apparent and traumatic in the over­the­counter derivatives space where the CFTC, the minor regulator in the U.S. back then, led the charge to regulate the previously unregulated industry, and to do it at the global level.

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Europe Delays Key Swaps Rules

By Andrew Ackerman
June 9, 2016, The Wall Street Journal

European policy makers are delaying a key piece of their postcrisis efforts to regulate derivatives, postponing new standards for banks to set aside cash as a cushion against the risk of certain swaps trades going bad.

The European Union’s executive arm won’t meet a September deadline for completing collateral standards, known as margin, on certain swaps that aren’t routed through so-called clearinghouses, said spokeswoman Vanessa Mock. Clearinghouses take fees to guarantee trades.

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U.S. Proposal Would Require Clearing More Interest-Rate Swaps

By Lisa Lambert
June 9, 2016, Reuters

The U.S. derivatives regulator on Thursday proposed widening the universe of interest-rate swaps that must be cleared through a central organization, as part of its efforts to align U.S. rules with those overseas.

The Commodity Futures Trading Commission said its proposed requirement for swaps that exchange interest rate cash flows will be consistent with those in Australia, Canada, the European Union, Hong Kong, Mexico and Singapore.

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Canada Waits on U.S., E.U. to Mandate CAD Swaps Clearing

By Kris Devasabai
June 8, 2016, Risk

Regulators in the U.S. and Europe will determine when Canadian dollar interest rate swaps are mandated for central clearing in Canada, according to a regulator at the Autorité des Marchés Financiers (AMF) in Quebec.

"The timeline for a Canadian dollar mandate is as soon as another major jurisdiction has such a mandate in place," said Marie-Annick Laurendeau, a lawyer responsible for derivatives rules at the AMF. "If the U.S. or Europe decide to mandate Canadian dollars, we will align with their timeline."

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E.U. Could Go It Alone on Leverage Ratio, Says MEP

By Philip Alexander
June 8, 2016, Risk

An influential member of the European Parliament's economic and monetary affairs committee (ECON) insists the E.U. should be prepared to go it alone on the application of the leverage ratio, if the internationally agreed version can be shown to harm the provision of client clearing by banks. The industry has long warned that the inclusion of client margin in the calculation of leverage ratio exposures will make client clearing prohibitively expensive.

"It makes sense that the clearing mandate should not be harmed by banks' lack of ability to provide clearing for all clients. If it can be demonstrated that harm is being done to clearing, the E.U. could go its own way on the leverage ratio," said Kay Swinburne, who is ECON co-ordinator for the third-largest parliamentary group, the European Conservatives and Reformists.

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Banks Gain Ground in Push to Change Derivatives Capital Rule

By Silla Brush
June 10, 2016, Bloomberg

The world’s biggest banks have argued for years that capital rules punish them for handling clients’ derivatives trades. All that lobbying is starting to pay off.

The European Union’s financial-services chief, Jonathan Hill, and members of the bloc’s parliament recently joined the Bank of England in saying the global capital standard needs to be fixed. At issue is the Basel Committee on Banking Supervision’s restriction on bank leverage, which forces lenders to have capital against billions of dollars in collateralized trades done by clients and settled at clearinghouses.

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Banks Tell Basel to Back Off Credit-Risk Capital Restriction

By Silla Brush
June 6, 2016, Bloomberg

Banks are stepping up opposition to looming capital standards, with one of the financial industry’s largest lobbying groups warning that regulators risk slowing the global economy with a clampdown on lenders’ ability to judge the health of their own borrowers.

The Basel Committee on Banking Supervision’s proposed curbs on banks’ use of internal models to assess risks would have a “material impact” on lending to financial institutions, corporations and other borrowers, the Institute of International Finance wrote in an 83-page letter to the regulator. The IIF called on the Basel Committee, whose members include the U.S. Federal Reserve and the European Central Bank, to grant banks more leeway in assessing the riskiness of borrowers, particularly large corporations.

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Super-Capitalized Banks Free from Rules in Republican’s Plan

By Jesse Westbrook
June 7, 2016, Bloomberg

A top House Republican wants to cut a deal with U.S. banks: Raise several hundred billions of dollars in additional capital and Washington will let you break free from a litany of burdensome rules.

House Financial Services Committee Chairman Jeb Hensarling has made the idea a key provision of his long-shot proposal for scrapping the Dodd-Frank Act. The plan, which Hensarling outlined Tuesday, also would get rid of Volcker Rule limits on banks trading with their own capital and change the Consumer Financial Protection Bureau’s structure to make the agency’s director less powerful.

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CFTC's Massad: Universal Clearinghouse Stress Test Ruled Out by Global Authorities

By Neil Roland
June 8, 2016, MLex

World authorities have rejected standardized clearinghouse stress tests in preparing a framework for regulators to apply across jurisdictions, said Timothy Massad, head of the U.S. Commodity Futures Trading Commission. He said the framework, which may be proposed at the September G-20 summit in China, would guide evaluations of the simultaneous impact...

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CFTC's Massad Visits China for Derivatives Reform

By Joyce Hanson
June 8, 2016, Law360

Commodity Futures Trading Commission Chairman Timothy Massad on Tuesday visited Shanghai Clearing House officials to address the vital role of worldwide central counterparty clearing and to push for closer ties between U.S. and Chinese regulators and market participants involved in the global derivatives markets.

Massad said he came to Shanghai to help the Global Association of Central Counterparties (CCP12) celebrate its registration as a legal entity in China and to commemorate the no-action relief that CFTC staff recently granted to the Shanghai Clearing House. And, Massad...

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Analysis: Banks Leery of Int'l Costs for GOP Dodd-Frank Replacement

By Evan Weinberger
June 8, 2016, Law360

A plan to replace the Dodd-Frank Act with an elevated but simple leverage ratio for banks outlined Tuesday by a top House Republican is unlikely to entice global banks that would still have to deal with international capital rules should the proposal become law, experts said.

The plan released by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, in a New York speech centers around giving banks the choice to maintain a 10 percent equity capital ratio designed to buffer the banks against a crisis in...

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CME Warns Some Fintechs 'Miss the Point' in Clearing

By Luke Clancy
June 9, 2016, Risk

CME Group's head of digitization, Sandra Ro, has warned against expecting early adoption of distributed ledger technology (DLT) and criticised some financial technology start-ups for their lack of understanding with regard to the clearing business.

CME Group has made some partnerships in the fintech space. The Chicago-based clearing house supports the Hyperledger Project, an open-source blockchain working group, and it provides free access to historical futures and options data to non-profit FinTech Sandbox, to promote technological innovation.

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Debt Traders Miss Credit Default Swaps as Losses Loom

By Joe Rennison and Mary Childs
June 9, 2016, Financial Times

Investors looking for shelter from the next corporate bond storm have all but lost the ability to buy a type of financial umbrella called the single-name credit default swap.

These derivative contracts provide a form of insurance. When the perceived creditworthiness of a company falls, single-name CDS prices rise, offsetting losses on a portfolio of bonds and loans.

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