Derivs - Regulation

Credit rating agencies could be banned from rating the sovereign debt of E.U. countries, under pre-legislative amendments put forward by some members of the European Parliament’s Economic and Monetary Affairs Committee.

Convergence between the U.S. and Europe on regulations affecting the cash and synthetic securitization markets remains mixed, according to a panelist at the Practising Law Institute’s 10th annual Securities Regulation in Europe conference in London.

Some dealers are concerned a Commodity Futures Trading Commission proposal on regarding membership criteria for dealers in central counterparty clearinghouses could open the door for entities who lack market-making experience in credit default swaps. They may, in turn, misuse capital that should be reserved in the case of default.

With the move towards establishing central clearinghouses and data repositories, politicians and regulators around the world are debating whether to establish a national central clearinghouse and national data repository for over-the-counter derivatives in their jurisdictions. Given the globalization of this market, the proliferation of data repositories would actually impede the ability of the international regulatory community to assess global systemic risk. While the impulse is for each jurisdiction to implement its own data repository, this approach would prove to be counterproductive in the long run.

The International Swaps and Derivatives Association is aiming to shore up a provision allowing a non-defaulting swap counterparty to net out its position and terminate a transaction with a counterparty in default. The industry group has set up a working party to review the master agreement provision after aspects of it have been queried by recent litigation.

Giving European regulators the power to impose stringent margin calls and demand more collateral could help prevent future crises or at least coordinate regulators’ actions in a crisis, according to a report from the European Securities and Markets Authority, the new pan-European regulator, to its members and European lawmakers.

Structured products market participants have asked the Committee of European Securities Regulators, now the European Securities Market Authority, to extend its proposed maturity limits of structured Undertakings for Collective Investments in Transferable Securities (UCITS) funds.

The International Swaps and Derivatives Association is creating a working group to discuss the possible creation of so-called master bridge agreements that would create some kind of framework to connect clearinghouses even if full interoperability is not yet possible.

A thicker shroud than usual surrounds the topic of bonuses this year as the banking industry waits to see how the European regulators’ ire will play out.

Proposals by the European Commission to write down or convert bank debt to recapitalize failing banks could make the debt not deliverable into current credit default swap contracts or cause buyers of protection to miss out on having events declared credit events.

Seven major foreign derivative dealers have tag-teamed federal regulators in a push for a broad carve out from several proposed Dodd-Frank Act rules on swaps.

The International Swaps and Derivatives Association’s Japan credit central counterparty working group committee has urged Japan’s Financial Services Agency that clearing members’ liability to a CCP be capped at a multiple of the guarantee fund, according to a committee draft proposal.