Derivs - FX

Buyside firms are looking for industry-wide standardized clearing documents in coming months as the newly-signed U.S. Dodd-Frank Act pushes much of the over-the-counter market towards central clearing.

A hedge fund swooped on USD800 million in two-month euro puts against the U.S. dollar on Wednesday, with strikes around USD1.10.

Forthcoming derivative legislation in the U.S. and the E.U. could force small hedge funds, pension funds and asset managers to limit or reduce their use of currency overlay services because those investors will likely face higher capital charges for bespoke derivatives and the costs associated with central clearing.

Close-out netting under International Swaps and Derivatives Association Master Agreements could become less effective once regulatory reform forces companies to separate various types of derivative activity.

Net derivative liabilities, under Basel II standards, will be taken into account when calculating a firm’s U.K. bank tax, according to a consultation released by H.M. Treasury today.

Hedge funds have been buying up the five-year calls on the U.S. dollar against the yen in recent weeks with strikes around JPY115, according to Mathieu Zaradzki, an fx strategist for Barclays Capital in Paris.

The New Zealand Ministry of Economic Development has issued a consultation paper that proposes to overhaul existing derivatives regulation in the country.

Registered funds that use exotic, riskier derivatives would have to set aside more assets to counterbalance their trades than plain vanilla users under a newly floated proposal.

Lutfey Siddiqi, a former-Barclays Capital managing director and founding head of its Asia-Pacific head of corporate risk advisory business, is reportedly set to head up corporate fixed income currencies and commodities sales for Asia at UBS.

Asset managers have been piling into exotic conditional variance swaps on fx as a way to hedge equity portfolios from a possible double-dip recession. The swaps allow investors to take a view on the volatility of a currency pair at a pre-determined spot range, and, unlike variance swaps, include additional features such as an activation strike and a cap on returns.

WisdomTree is planning to launch a Commodity Currency exchange traded fund that will use fx forwards and cash investments to provide returns. The asset manager will track currencies from developing and developed countries to make a direct play on global growth and include countries such as Australia and Canada.

Asian institutional investors are buying simple, bespoke hybrid notes linked to interest rate or foreign exchange movements and juicing up the payout by betting on the risk of default of a well-known credit name or sovereign.