News: The week that was (aka Dazzling Derivatives; issue of 25.6.2013)

25 June 2013 | Tom Riesack

Dear all, it's been a frantic Monday so please bear with me for sending this out a day late :)

The TOP Stories of last week include:
Account segregation could lead to losses in listed derivatives broking According to a Financial News article (subs required) clearing brokers stand to lose up to a third of their revenue stream from listed derivatives broking as they will not be allowed to re-use excess collateral from clients when these choose individual segregation of assets at clearing houses.
CVA exemption under Basel III under scrutiny BaFin (the German regulator) as well as the PRA (the UK regulator) are said to be considering to re-instate the CVA charge for formerly announced exempt entities, including corporates, sovereigns and pension funds, according to this RISK report (subs required).
SEF rules are shaping the market While the CFTC has now released another no-action relief letter for currently operating swap trading facilities, Bloomberg is currently the only SEF applicant so far but others are on the verge of applying themselves - the race for SEF domination is on!
The clearing mandate works ClarusFT have analysed the swap clearing data in the US year-to-date and have e.g. found that cleared USD IRS volumes have risen by a whopping 100% ytd whereas uncleared volume has declined by 60% in the same timeframe.
MiFID II finalised until year-end? The Trade News quotes Markus Ferber, lead rapporteur for MiFID II in the European Parliament, that he fully expects a finalised text twoards year-end.
Michel Barnier chides the US on derivatives rules Michel Barnier in an opinion piece on Bloomberg call the U.S. approach to derivatives regulations flawed, especially on the hotly debated topic of extraterritoriality. This comes at a time where Senator Elizabeth Warren demands the CFTC to get a move on with cross-border rules. And IOSCO (subs required) warns that substituted compliance unlikely to work without a global body to settle disputes.
Want to know how many pre-LEIs are issued? A per country statistic can be found here: http://www.p-lei.org/blog/statistics/
Calypso up for grabs? Calypso, one of the leading technology companies, offering technology solutions to exchanges, sell-side and buy-side clients is up for sale and attracting interest from private equity investors, according to this Financial News report (subs required).


(FYI, some articles require a subscription (e.g. RISK, Financial News), others a free registration (e.g. Tabb Forum, DerivSource))


(1.1) EUROPE

Welcome to EMIR: the known unknowns of customer classification With EMIR in force, firms are now wrestling with the challenge of classifying their customers – without an industry viewpoint the dialogue could get ugly … http://www.bankingtech.com/80161/welcome-to-emir-the-known-unknowns-of-customer-classification/

EU derivatives delay gives global talks more time (Reuters) - The European Union has delayed a deadline for deciding if U.S. firms must comply with the bloc's derivatives rules, giving more time to strike a global deal to avoid costly overlaps. http://uk.reuters.com/article/2013/06/14/uk-eu-derivatives-idUKBRE95D0R520130614

MiFID II by Christmas while dark concerns grow A pre-summer start to trialogues will result in a completed MiFID II text by year's end, but buy-side concerns about dark pools remain. http://www.thetradenews.com/news/Regions/Europe/MiFID_II_by_Christmas_while_dark_concerns_grow.aspx

Non-finance firms want more say on EU regulation European companies have renewed calls for policymakers to better assess the impact of financial services regulations on the real economy, amid growing fears the post-crisis reform agenda is stifling growth. http://www.efinancialnews.com/story/2013-06-21/eu-companies-call-for-regulatory-inclusion

The industry needs regulatory certainty, not just guidelines Regulation continues to exercise the minds of Europe’s exchange-traded industry and was the focus of recent conferences in London and Amsterdam. http://www.efinancialnews.com/story/2013-06-24/etf-industry-needs-regulatory-certainty-not-just-guidelines-comment

(1.2) US

Bloomberg sole SEF applicant so far Almost a month after the Commodity Future Trading Commission's (CFTC) publication of its rules for swap execution facilities (SEF), the only applicant is the regime's leading detractor. http://www.thetradenews.com/news/Asset_Classes/Derivatives/Bloomberg_sole_SEF_applicant_so_far.aspx CFTC’s Division of Market Oversight Provides Time-Limited No-Action Relief to Provide for Transition to SEF Registration Washington, DC – The Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) today announced the issuance of a time-limited no-action letter providing temporary no-action relief to entities that have been operating pre-Dodd Frank trading platforms. http://www.cftc.gov/PressRoom/PressReleases/pr6612-13 Mandatory Clearing, June 10, Week One and YTD Following on from my blog post of Day 3, I wanted to provide an update of Week One and also take a longer view; the Year to Date. http://www.clarusft.com/mandatory-clearing-june-10-week-one-and-ytd/ Block That Threshold! The CFTC’s block size rule, more than a year in the making, includes a major flaw: The block thresholds don’t account for liquidity or average trade size in a given product. http://tabbforum.com/opinions/block-that-threshold Swap Data Repository, Block Trade Rule, the Bad News Under the Dodd-Frank Act, the CFTC issued Part 43 of its regulations to implement the real-time reporting mandate. This has a requirement for “real-time public reporting”, which is defined as “to report data relating to a swap transaction, including price and volume, as soon as technologically practicable after the time at which the swap transaction has been executed.” This article discusses the impact of the Block Trade Rule, which will become effective on 30 July, 2013. http://www.clarusft.com/swap-data-repository-block-trade-rule-the-bad-news/ Warren: Don't delay on cross-border derivatives rules Sen. Elizabeth Warren (D-Mass.) has a message for the Commodity Futures Trading Commission (CFTC): Get a move on. http://thehill.com/blogs/on-the-money/banking-financial-institutions/306871-warren-dont-slow-walk-cross-border-derivatives-rules U.S. Can’t Go It Alone on Derivatives Over the past five years, the European Union and the U.S. have developed separate, new regulatory regimes for derivatives, aimed at protecting our financial systems, economies and taxpayers from a repeat of the 2008 crisis. The next challenge is to use those reforms as the foundation for a single, global framework. http://www.bloomberg.com/news/2013-06-20/u-s-can-t-go-it-alone-on-derivatives.html CFTC’s Division of Swap Dealer and Intermediary Oversight Issues No-Action Relief Providing an Alternative to Fingerprinting to Establish Fitness of Associated Persons Residing Outside the United States Washington, DC —The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) today announced the issuance of a no-action letter relating to the fingerprinting requirement under Commission Regulation 3.12 for certain associated persons of Commission registrants. http://www.cftc.gov/PressRoom/PressReleases/pr6616-13 CFTC Commissioner Chilton’s Address to Hedge Fund Conference Covers HFT, Global Markets On Tuesday, June 18th 2013, CFTC Commissioner Bart Chilton gave the keynote address in the conference Hedge Fund Industry in 2013, which was held in Chicago, Illinois. In the address, he gives some insight into the working parts behind the Commodities Futures Trading Commission, and why they see some aspects of the financial industry as potential threats to the stability of the market. http://www.cftclaw.com/2013/06/cftc-commissioner-chiltons-address-hedge-fund-conference-covers-hft-global-markets/ Gary Gensler’s Term May Be Over in July The Commodity Futures Trading Commission Chairman Gary Gensler may be replaced as early as July, reports The Financial Times. His term, which began on May 26th 2009, was set to expire in April this year, but until a new Chairman has been appointed by President Obama, Gensler may ride out the term until the end of this year. http://www.cftclaw.com/2013/06/gary-genslers-term-july/ A Wall Street regulator’s race against time The rumor is that Gary Gensler, the Goldman Sachs trader turned Wall Street regulator, may see his time atop the Commodities Futures Trading Commission end in July. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/22/a-wall-street-regulators-race-against-time/


Bafin to Enact CVA Charge? An interesting article in Risk magazine, highlighting the continuing uncertainty over Basel III implementation and its integration with concurrent regulatory reforms. http://regulatoryreform.wordpress.com/2013/06/19/bafin-to-enact-cva-charge/

Bafin weighing CVA charge despite European exemptions Supervisors ‘should accept the legislation that the council and the parliament in their wisdom have decided upon’, warns MEP http://www.risk.net/risk-magazine/news/2275794/bafin-weighing-cva-charge-despite-european-exemptions Backlash on the EU CVA exemption continues The decision by European legislators to exempt EU banks from the CVA capital charge when trading with certain counterparties has infuriated regulators at home and abroad. Nick Sawyer discusses the issue with Duncan Wood http://www.risk.net/risk-magazine/opinion/2276810/risk-on-the-eu-cva-exemption Asian CCPs left to apply ‘in the dark’ for Esma recognition Asian CCPs under pressure from EU third-country equivalence/recognition deadline squeeze http://www.risk.net/asia-risk/news/2275307/asian-ccps-left-to-apply-in-the-dark-for-esma-recognition Canadian regulators respond to energy firms’ concerns on derivatives Updated OTC derivatives rules satisfy concerns of energy traders, but inconsistencies with Dodd-Frank remain http://www.risk.net/energy-risk/news/2275169/canadian-regulators-respond-to-energy-firms-concerns-on-derivatives
ISDA Urges Canada to Reconsider Proposal for Derivatives Registration Regime The International Swaps and Derivatives Association told Canadian securities authorities June 17 that its proposal to register derivatives users could lead to diminished liquidity if implemented. http://about.bloomberglaw.com/law-reports/isda-urges-canada-to-reconsider-proposal-for-derivatives-registration-regime/ Dealers plan standard margin model for WGMR regime Fight over margin requirements for uncleared trades is not over, banks vow, but Isda will develop a standard model for use under the rules http://www.risk.net/risk-magazine/news/2276485/dealers-plan-standard-margin-model-for-wgmr-regime http://regulatoryreform.wordpress.com/2013/06/21/isda-to-develop-standard-model-for-margining-non-cleared-trades/ Substituted compliance requires global oversight, warns Iosco’s Wright Substituted compliance unlikely to work without a global body to settle disputes, says Iosco secretary-general http://www.risk.net/risk-magazine/news/2276470/substituted-compliance-requires-global-oversight-warns-iosco-s-wright


Markit acquires DTCC corporate actions validation service Financial data outfit Markit has acquired the assets of Global Corporate Actions Validation Service from the Depository Trust & Clearing Corporation (DTCC). Financial terms of the deal were not disclosed. http://www.finextra.com/News/FullStory.aspx?newsitemid=24929 Consortium Launches Pre-LEI Data Source GS1, FIX Protocol Ltd., Tahoe Blue and the Corporation for National Research Initiatives have launched P-lei.org, a project to distribute data for legal entity identifiers issued by pre-local operating units. http://www.waterstechnology.com/inside-reference-data/news/2274587/consortium-launches-prelei-data-source Data Quality Is Key To The Success Of The Global LEI Initiative For all the debate over creating an ideal structure for the global Legal Entity Identifier (LEI) solution, the reality is that the long-term success of this initiative hinges on a more fundamental issue – the quality of the data that is used to uniquely identify financial institutions contained in the international database of entities. http://www.iss-mag.com/forward-thinkers/data-quality-is-key-to-the-success-of-the-globa Suitors circle as Calypso owners seek exit route Calypso, the US-based capital markets technology company, is up for sale and attracting interest from private equity investors, according to two people familiar with the matter. http://www.efinancialnews.com/story/2013-06-24/suitors-circle-calypso

CFTC’s amends rules to identify global participants in swaps markets Allan D. Grody examines the implications of the recent CFTC CICI Utility ruling. http://www.fow.com/Article/3220497/CFTCs-amends-rules-to-identify-global-participants-in-swaps-markets.html


London Stock Exchange enters interest rate swaps market (Reuters) - The London Stock Exchange Group is to launch an interest rate swaps trading platform in a move backed by a group of banks to meet regulators' demands for greater transparency in the once secretive but huge market for such financial derivatives. http://www.reuters.com/article/2013/06/14/markets-lse-idUSL5N0EQ1A120130614 Interview with Michael Peters, Eurex Executive Board FOA’s Special Report – Derivatives Clearing 2013 http://www.eurexclearing.com/clearing-en/about-us/news/538522/ Greater market coverage and extended scope: Eurex makes securities lending CCP updates Since 7 June, our CCP service for the securities lending industry now covers blue chip equities from Belgium, France, and the Netherlands complementing our offering for German and Swiss equities, fixed income securities and ETFs. http://www.eurexclearing.com/clearing-en/about-us/news/536654/ Cross-margining and collateral savings for cleared derivatives: will the savings really be there? Part of the marketing pitch from derivatives clearing houses is about the benefits of cross-margining. The broader the product mix that is included in a netting pool, the more advantages will be achieved. The end game is to reduce margin requirements and save on the amount of collateral posted. But there is a problem. http://www.secfinmonitor.com/sfm/cross-margining-and-collateral-savings-for-cleared-derivatives-will-the-savings-really-be-there/ Futurisation dooms energy swap execution facilities The US Dodd-Frank Act envisioned a new type of trading venue for over-the-counter derivatives, known as swap execution facilities (Sefs). But in the energy markets, at least, it appears Sefs are dead and traditional futures exchanges have emerged triumphant. http://www.risk.net/energy-risk/feature/2275183/futurisation-dooms-energy-swap-execution-facilities


Revenue plunge fears could prompt banks to head for the door Banks face a substantial revenue decline as a result of a largely overlooked rule in new G20-led derivatives legislation that aims to better protect the assets they hold on behalf of their buyside clients. http://media.efinancialnews.com/story/2013-06-17/investment-banks-derivatives-buyside-regulation-revenues Effective regulatory change needs collateral thinking As the industry prepares for a tsunami of regulation, we joined a panel of experts, hosted by Financial News, to provide insights on the challenges and opportunities facing the institutions in a collateral hungry marketplace. http://link.brightcove.com/services/player/bcpid1644574771001?bckey=AQ~~,AAABXlLLzpE~,9Y5-AEi1-q5JyqDOeuie5YVpsVWhexEE&bctid=2418509763001 JPMorgan launches Collateral Central With the management of collateral now seen as a critical front-line resource, JPMorgan has launched a service to provide buy- and sell-side clients with real-time insight into their holdings across custody, clearing and counterparty relationships. http://www.finextra.com/News/FullStory.aspx?newsitemid=24928 Custodian Collateral Reports: Still Some Ways to Go I heard an observation from an institutional fund manager that stuck in my mind and is worth repeating: the information they receive on what collateral they have from their custodians is just not up to par with what they need. http://www.secfinmonitor.com/sfm/custodian-collateral-reports-still-some-ways-to-g/ Swaps: The Next Frontier Migration to electronic and multilateral trading in the swaps market will create myriad trading opportunities. http://www.advancedtrading.com/managingthedesk/swaps-the-next-frontier/240156659 FOA and FIA agree merger as global derivatives reforms gather pace Two of the world's largest derivatives trade bodies have agreed to combine in a move designed to give trading firms a "global voice" amid sweeping reforms that are transforming the global derivatives market. http://www.efinancialnews.com/story/2013-06-20/fia-foa-merger-to-offer-a-global-voice-on-derivatives-reforms FOA members need assurances on the creation of FIA Global News of a deal between the Futures Industry Association and its European counterpart the Futures and Options Association comes as no surprise, but FOA members must get further assurances before they agree, says William Mitting. http://www.fow.com/Article/3221816/FOA-members-need-assurances-on-the-creation-of-FIA-Global.html Swaps reforms buoy currency futures volumes The global drive to push more privately negotiated derivatives contracts on to exchanges has led to strong growth in currency-based futures and options trading, with foreign exchange derivatives traded in emerging markets experiencing particularly large gains. http://www.efinancialnews.com/story/2013-06-24/swaps-reforms-buoy-currency-futures-fia-data ISDA 2013 Margin Survey Results: $3.70 Trillion of Collateral in Circulation in Non-Cleared OTC Derivatives Market NEW YORK, June 21, 2013 – The International Swaps and Derivatives Association, Inc. (ISDA) today released results from its 2013 ISDA Margin Survey. http://www2.isda.org/news/isda-2013-margin-survey-results-370-trillion-of-collateral-in-circulation-in-non-cleared-otc-derivatives-market More or Less? Is the OTC derivatives market growing…or shrinking?  A recent Bloomberg BusinessWeek piece helps provide an answer. http://isda.mediacomment.org/2013/06/21/more-or-less/ Securities lenders are betting their future on transforming your collateral The securities lending markets are finally coming to terms with the fact that it will never be a glad, confident morning again. Six years on from the start of the financial crisis, even agent lenders have finally conceded to themselves that the securities lending markets are not going to revert to the status quo ante the Great Financial Crisis. http://cooconnect.com/news/securities-lenders-are-betting-their-future-transforming-your-collateral Asset Segregation: Making Sense of the Models The evolving landscape for the segregation of assets is complicated. Lynn Strongin Dodds explores the advantages and disadvantages of the various segregation models and explains what buy-side firms should take into account as they prepare for central clearing. http://www.derivsource.com/articles/asset-segregation-making-sense-models