Derivs - FX

The European Securities and Markets Authority has declared that a central counterparty should not exclude client positions from the calculation of the size of the default fund.

Kan Fung Li, managing director and head of Asia Pacific fx trading at Bank of America Merrill Lynch, has left the firm.

Hedge funds are buying structures to position for interest rates increases and appreciation in a particular currency. Combining the two options significantly reduces their premium.

Investors should be looking at buying China yuan non-deliverable forwards in anticipation of further liberalization of China’s benchmark interest rate. According to one senior fx structurer in Hong Kong, the move to liberalize the interest rate benchmark could add greater volatility to the country’s fx rate.

The increase in hedging costs post-Dodd Frank will lead to a drag on fixed income portfolio returns, with costs ranging from 20-62 basis points for centrally cleared instruments, according to a report from Sapient Global Markets.

The applicability of the Basel III credit valuation adjustment add-on against corporate hedging transactions could put Asian corporate clients at a disadvantage and result in less hedging, Nitin Gulabani, global head of fx, rates and credit at Standard Chartered, told DI in an exclusive interview.

Mainland Chinese corporates are unwilling to provide credit support annex documents when entering cross-border derivative contracts, making it difficult for foreign dealers to sell hedging products, such as fx forwards and options, to their Chinese corporate clients.

Investors should go long the U.S. dollar against the Russian ruble, while buying two-month USD/RUB calls with a reverse knock-out as an overlay, according to strategists at Credit Suisse.

Nancy Davis, the former head of trading for OTC, derivatives and credit at Goldman Sachs prop in New York, is to launch a discretionary global macro firm.

Since its inception, the non-FX/equity OTC derivative market was largely self-regulated. As the market grew from the late 1990s to mid-2005, this model worked well. New dealers were entering the OTC derivative market and competition amongst this group was fierce. However, as the participating dealer base peaked around 2005, so too did conditions of free money and leverage. These conditions helped fuel the financial crisis that would soon follow and completely reshape the OTC derivative and financial markets.

The first structured product referencing an Algoam propriety index linked to the FTSE 100 is set to launch within the next three months.

The Reserve Bank of India is looking to improve the availability of long-term over-the-counter fx forwards by developing the country’s money market and interest rate swaps market, making it easier to price forwards with tenors greater than one year.