After the 2008 financial crisis, more emphasis was given to OTC Derivatives market in order to make it more transparent and fail proof. To achieve the same, new laws and regulations were introduced and implemented in various parts of the world. One of the main requirements was central clearing of OTC Derivatives via CCPs. Though the objective was to avoid counterparty risk of default, no emphasis has been made till now to handle the situation if a clearing house itself defaults.
If you weren't aware, the CFTC now publish aggregate data based on the trade data submissions on OTC products to the DTCC, ICE and CME SDRs on a weekly basis. The introduction page explains the approach and their Data Dictionary.
If you were short of data on the OTC market, the CFTC will satisfy your needs from now on. Their new Weekly Swaps Report aggregates data from ICE, CME and DTCC to provide a snapshot of the cleared and un-cleared OTC market. The report provides a considerable number of breakdowns, an example here of the data cut by notional, others are available if you use the pop-up menu on the left.
Palgrave have extended their generous discount offer to three more titles below in addition to the recent Clearing book by David. For all these titles click over to the dedicated OTC Space discount page and get your copies now.
It is clear CFTC does not yet have meaningful systemic risk information from the end of day / historic SDR reporting which has been live for several months. As well as tackling a very large big data project which is unfunded, CFTC needs to change the reporting rules so that reporting obligations are better split across various service providers to drive much more efficient data collection, transformation and aggregation.
Craig Pirrong (aka the Streetwise Professor) looks at the moral hazard problem firms face when considering if they want to clear or keep their derivatives trades bilateral.
The post is a worthwhile read as it takes the reader away from the more mundane "how do I comply with my regulatory requirements" towards the more in-depth thinking of why someone would decide to not clear.
Moscow Exchange opened its new Standardised OTC Derivatives Market on 28th October.
The service allows banks and dealers to clear OTC interest rate, FX, and cross currency swaps through the NCC, which is aqualified central counterparty. This will reduce participants" capital requirements and increase profitability due to more efficient liquidity management.