Derivs - Regulation

Central counterparty master bridge agreements and updates to the 2(a)(iii) default provision may not make for headlines as sexy as last year when it comes to the International Swaps and Derivatives Association 2011 Annual General Meeting in Prague, but they will certainly get industry-types excited.

Bart Chilton, a member on the U.S. Commodity Futures Trading Commission, said differing regulations for derivatives between the U.S. and Europe could lead to a “race to the bottom,” with players migrating to the poorest regulated jurisdictions.

The International Monetary Fund said new regulations governing over-the-counter derivatives could shift risk from banks to clearinghouses, leading to concerns about those systemically important facilities.

A European Central Bank recommendation for the European Securities and Markets Authority to set up a trade repository-like mechanism for collecting information on net short positions appears to be the regulators’ way of tying together disparate pieces of regulation.

Shawn Bernardo is vice chairman of the Wholesale Markets Brokers’ Association Americas and is also managing director and head of electronic broking for the Americas at Tullett Prebon in New York. He spoke to Associate Reporter Mike Kentz on the aspects of current regulatory proposals in the U.S. aimed at SEFs.

Regulatory attempts in Europe to require specific payout profiles in base prospectuses or prospectus supplements for retail structured products would be detrimental to improving product transparency, according to the European Structured Investment Products Association.

The bankruptcies of several large institutions have highlighted a potential ambiguity within the International Swaps and Derivatives Association’s Master Agreement relating to Section 2(a)(iii). Specifically, several courts have addressed the issue of whether a party can exercise its rights under Section 2(a)(iii) to withhold payment indefinitely following the bankruptcy of its counterparty without declaring an Early Termination Date. This article compares the recent rulings and offers some negotiating options for counterparties to consider.

The China Banking Regulatory Commission is considering setting risk capital for derivatives on a firm-by-firm basis.

A proposed ban on naked short selling by the European Union could create problems for small countries trying to fund their national debt, according to Bo Lundgren, head of Sweden’s National Debt Office.

Some emerging market regulators, including those in Malaysia and Indonesia, have called on major dealers to draft not only local-language versions of International Swaps and Derivatives Association Master Agreements, but simplified, plain language versions in the local language for smaller corporates.

The recently-enacted safe harbor for close-out netting in the revised Malaysia Deposit Insurance Act (PIDM Act) doesn’t go far enough for major dealers.

The presidency of the Council of the European Union’s has proposed stronger rules segregating assets between central counterparties, clients and other CCPs in the proposed European Market Infrastructure Regulation.