Derivs - Regulation

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.

U.S. Commodity Futures Trading Commission has been hiring staff to write new regulations since last fall and is ready to draft them.

The type of counterparty dealers face may account for split view among dealers in a Federal Reserve Board survey that found players were evenly split between those tightening and those relaxing margin for exotic credit derivatives.

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.

The Malaysia Deposit Insurance Corporation is proposing to ease the process of close-out netting.

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.

Sponsors and originators of securitizations will not be allowed to hedge against the 5% retained slice under the latest guidelines for article 122a of the capital requirements directive II. Banks issuing deals will have to be fully exposed to the risk of retaining the 5% of their transactions, more commonly referred to as “skin in the game,” according to last week’s Committee of European Banking Supervisors consultation paper on the issue.

European credit spreads rallied last week as the picture became clearer on the important bank stress tests.

Some clearinghouses will have to expand their compliance operations due to extra reporting requirements for standardised over-the-counter derivatives arising from forthcoming regulation, and more frequent visits from multiregional regulators, according to officials.