Derivs - Regulation

Proposed Securities & Exchange Commission language beefing up offering, disclosure and reporting requirements for privately offered asset-backed securities could wind up applying to structured notes.

Edouard Vieillefond, head of regulatory policy and international affairs at France’s Autorité des Marchés Financiers, told Derivatives Week this morning that although the regulator is in favour of curbing speculation, Germany’s decision last night to ban naked sovereign CDS trading will be extremely challenging to enforce.

End-users are hoping for the best, but preparing for the worst. Over the next week they will be pushing harder than ever for a stronger exemption from clearing and margin requirements, focusing their efforts on the clarification of vague definitions in the current Senate bill, slated for a vote next week.

National and European lawmakers could end up deciding whether over-the-counter fx trades will be cleared in their respective markets, not the European Commission, according to Patrick Pearson, head of financial markets infrastructure at the Commission.

Clearinghouses will be required to set up a dedicated subsidiary in Japan in order to conduct credit default swap clearing business onshore with a Japanese counterparty under new regulation passed last week by the Japanese parliament.

Regulators will come down hard on central counterparty clearers that are seen to be relaxing risk management systems as a way of competing, lawmakers warned at a conference in London this morning.

The OTC Derivatives Regulators’ Forum is preparing to launch in the next month or two a Web site where it will describe in more depth what projects the group is working on and give information about its formation and membership.

Michel Barnier, the European Commissioner for Internal Market and Services, today called for greater transparency in sovereign credit default swap trading rather than an outright ban.

Increasing flows of credit default swaps in Korea, driven largely by the uptick of credit-linked notes sold in the country, has prompted rating agency Fitch Solutions to introduce a pricing service for Korean CDS.

Currency options traders are expecting a slew of long-term put options on cable to hit the market next week following an E.U. vote on the controversial Alternative Investment Fund Management directive, which industry officials say could drive hedge funds out of the U.K. and hurt the country’s tax revenues.

A crop of hedge funds setting up shop in Hong Kong specifically to invest in Chinese stock through the use of over-the-counter derivatives are being squeezed by the quotas placed on foreign investors by the Chinese authorities.

Since retail structured products must already be registered with the Securities and Exchange Commission, they will be largely unaffected by pending derivatives legislation, experts say. But if firms are forced to clear their internal hedges for those structures, investors could face higher costs.