Derivs - Interest Rate

On Nov. 16 the Department of the Treasury issued a determination that foreign exchange swaps and fx forwards should not be regulated under the Commodity Exchange Act and therefore should be exempted from the definition of swap under the CEA as amended by the Dodd Frank Wall Street Reform and Consumer Protection Act. The Determination is a wholesale adoption of the proposed determination issued by the Treasury last year and took effect immediately.

Adjusted volumes of over-the-counter derivatives have dropped by 5.3% from USD440.1 trillion at year-end 2011 to USD416.9 trillion June 30, 2012, largely due to compression and clearing, according to an analysis by the International Swaps and Derivatives Association.

The European Securities and Markets Authorities has published guidelines stating that a national competent authority should assess and ensure that a central counterparty has put in place a framework to identify, monitor and manage potential risks arising from interoperability arrangements.

Structured product volume on the Scoach Switzerland exchange is declining, reflecting waning investor concern over counterparty credit and the lack of appetite for the fees associated with listing.

Citigroup has taken an equity stake in ICAP’s iSwap Limited, a platform for interest rate swaps, and separately will support the platform with streaming prices.

The Swiss Financial Market Supervisory Authority has ordered UBS to improve processes and controls for the submission of interest rates data for benchmarks. This comes after UBS was fined approximately USD1.5 billion by U.S., U.K., and Swiss regulators for attempting to manipulate the London interbank lending rate and other interest rate benchmarks.

The Australian Securities and Investments Commission has released regulatory guidance for domestic and overseas clearing and settlement providers wanting to operate within the domestic Australian market.

Now could be the time to enter a flattener strategy on the iTraxx Main 3-5y curve with quantitative signals showing the curves are beginning to look too steep, say Société Générale strategists.

NASDAQ OMX Nordic will clear Swedish krona denominated interest rate swaps for client trades from February 2013.

Paul Ellis, managing director in yen interest rates trading at Credit Suisse in Tokyo, has joined Brevan Howard in a similar role.

JPMorgan is advising investors to position for a likely increase in the directionality of forward U.S. yield curves by entering a conditional one-year forward 2s/10s bull flattener constructed with three-month expiry mid-curve swaptions.

Regulatory proposals for initial margin requirements for non-centrally cleared derivatives will severely impact liquidity and could increase systemic risk, according to trade associations.