Derivs - Interest Rate

Japanese financial firms with over-the-counter derivatives holdings have not adequately decreased their wrong way risk--the combination of counterparty credit risk and market exposure--since the collapse of Lehman Brothers, according to Japan’s central bank.

Société Générale is recommending a butterfly trade by selling six-month payer swaptions on the two- and 10-year U.S. dollar interest rates and buying a six-month payer swaption on the five-year rate in order to take advantage of low volatility on the five-year.

Brian Lai, an onshore China yuan interest rate and fx options trader at JPMorgan in Shanghai, has resigned.

Buyside firms should monitor central counterparties on a daily basis once regulations are finalized because of risks associated with margining and counterparty exposure, said Else Braathen, head of the risk management domain at portfolio software firm SimCorp in New York.

Hedge funds and money managers have been buying three- and six-month rate locks on the 10-year Municipal Market Data municipal bond index rates because the locks are considered cheap relative to spot.

Igor Arsenin, director of fixed income research and the head of Latin America fixed income strategy at Credit Suisse in New York, resigned last week and is on garden leave.

Jonathan Sebag, London interest rates derivatives trader for Lloyds TSB, left the firm last month.

Commerzbank is looking to expand its emerging markets interest rates derivatives business in London and Asia by adding upto six people over the next year to its current 12 person team.

Trad-X, the euro interest rate swaps hybrid trading platform run by Tradition, has seen volumes recover since the start of the year.

BlackRock favors electronic trading models that use requests for quotes for trading derivatives, rather than central limit order book models, because there is currently greater access to liquidity.

Department of Labor rules regarding prohibited transactions and fiduciary obligations will make it tough for swap dealers to clear over-the-counter swaps for pension plans under Dodd-Frank if guidance or exemptions are not provided. Implementation is slated for November and DoL often acts with glacial speed, which has the industry very concerned.

Japan is set to become the first country to implement mandatory clearing of over-the-counter credit default swaps and interest rate swaps. The Financial Services Agency will implement the first phase of the reforms from November, according to a draft of its detailed rules and cabinet office ordinance.