Derivs - FX

A 10-year Australian dollar/yen call with a notional of AUD500 million has hit the market in the face of the yen slide of the past few days.

Marex Spectron is advising customers to buy a one-year 45 delta U.S. dollar/Turkish lira call with a 55 delta hedge, suggesting that investors over-hedge themselves to earn more carry from depositing the TRY and selling 55% of the notional as the delta hedge.

Japanese dealers will have a pricing advantage over foreign firms as they will not have to include credit valuation adjustments into their risk management capital ratios for domestic yen-denominated derivatives when new Basel III standards are enforced in March.

Clearing requirements for fx forwards in E.U. derivatives regulation would result in less hedging activity amongst corporate end users, says James Bindler, global head of fx options at Citigroup in London and a member of the Bank of England's Fx Joint Standing Committee.

Hedge funds are urging the European Securities and Markets Association to include a straight-through-processing standard in the final regulatory technical standards for over-the-counter derivatives, central counterparties and trade repositories. The funds argue that an STP standard would reduce systemic risk and create an open and competitive market.

The Royal Bank of Scotland has appointed Jeremy Smart in a newly created role as global head of electronic distribution within its market and international banking division in London.

Deutsche Bank is advising investors to sell a one-month 35-delta euro/Swedish krona call and buy a one-month 35-delta EUR/Australian dollar call to offset any cost.

Fx has stood out as special case in the regulatory debates over the last few years as a quick to settle, liquid market subject to less of the risk seen in other derivatives. But, how that status actually feeds through to the final rules is still a hot issue. At the center of the debates is the global fx division at the Global Financial Markets Association. It has been in discussions with the Australian Treasury, the U.S. Commodity Futures Trading Commission and the European Securities and Markets Authority over recent months. Managing director James Kemp, spoke with DI to run through the key issues.

Fx contracts are not comparable to other over-the-counter derivative contracts and the European Securities and Markets Authority needs to clarify their position under the European Market Infrastructure Directive, according to the Investment Management Association.

The Global Financial Markets Association has tapped David Ngai in a new role as managing director of the global fx division for Asia Pacific.

An increase in double-no-touches flows is in the cards, according to market watchers, who think they’ll fit directionless fx markets hung up on uncertainty in Europe.

Endowments and foundations in the U.S., particularly the larger funds, are increasingly turning to derivatives for both hedging and to maintain tactical asset allocation targets, according to a report from DW sister publication Foundation and Endowment Intelligence. The report, which looks at the increasing use of interest rate, equity, credit and fx derivatives, also examines how funds are managing counterparty credit risk.