Derivs - Credit

The rate of structured product redemptions has eased recently in Asia, as investors hold on to investments amid uncertainty.

The slower pace of regulatory change in Europe could benefit European dealers operating in Japan, as firms there diversify away from U.S. counterparties ahead of stiff Dodd-Frank regulations being implemented. Tomoko Morita, policy director and head of the Tokyo office for the International Swaps and Derivatives Association, said Japanese firms will be tempted to shift to European counterparties in order to sidestep registration as a major swap participant under U.S. regulation.“

Even without the disaster in the U.S., sovereigns would probably have stayed in a state of limbo. The European Central Bank’s OMT bond buying program is ready to go and the prospect of unlimited central bank intervention has helped keep spreads low, at least by recent standards.

The recent widening in insurance subordinated credit default swaps has opened up trading opportunities for investors, according to Barclays.

Attempting to simplify product information in a key information document for structured products may limit the usefulness of the disclosure and is likely to mislead investors, according to the Joint Associations Committee on Retail Structured Products.

The U.K.’s insolvent pension scheme lifeboat, the Pension Protection Fund, over the last 12 months, has expanded its hedging strategy to reduce the swap spread risk.

The Japan Securities Clearing Corp.’s move to become the first Asia Pacific clearinghouse to register as a derivatives clearing organization—or DCO—under the U.S. Commodity Futures Trading Commission could be an expensive venture for the CCP, but is needed to be competitive in the emerging global clearing marketplace, according to lawyers and officials in Tokyo.

As the derivatives market moves towards central counterparty clearing, initial margin has increasingly become a subject of industry discussion. CCPs require firms to post initial margin when entering into derivatives to provide protection in the event of a default; however, concerns over how the margin is calculated are growing. Market participants are now looking at the potential for standardizing initial margin.

Tradeweb Markets has revamped its electronic marketplace for U.S. investment-grade and high-yield credit default swap indices.

U.S. firms operating in Japan are losing trades to European and domestic counterparties, as complying with Dodd-Frank rules adds an extra 10 minutes to the trading process, according to Hiroki Tomiyasu, executive director at Morgan Stanley MUFG Securities in Tokyo.

Levels for five-year credit default swap on banks in Europe that own significant government bonds in their home country have shown signs of sharp outperformance relative to five-year sovereign CDS during the last week.

The Japan Financial Services Agency plans to push regulators in the U.S., Europe and other regions to move forward with the implementation of mandatory clearing of over-the-counter derivatives.