Derivs - Regulation

Purported linkage between Greece’s fiscal woes and naked credit default swaps this week dealt a fresh blow to the G14 derivatives dealers, who had seemingly gained some ground after committing to regulators to bring more transparency to the CDS market.

Speakers on the regulation panel gave delegates their two cents on what they expect to see in forthcoming legislation, and how far discussions on Capitol Hill have gone. “After a quiet period, we think you’re going to see a lot of activity in the next six to eight weeks,” said Cory Strupp of SIFMA.

Members of the U.K. House of Lords have opposed the set-up of a Europe-wide default fund to stave off a clearing house collapse.

Andrew Feldstein, ceo and cio of BlueMountain Capital Management, said on the regulation panel at Markit’s OTC derivatives seminar Tuesday that markets need to get used to the idea of certain systemically important and interconnected companies being too big to fail.

Minimum capital requirements for correlation desks should be excluded from upcoming European legislation, according to a draft report by Arlene McCarthy, U.K. member of the European Parliament and vice-chair of Europe’s Economic and Monetary Affairs Committee.

The U.S. Securities and Exchange Commission’s Division of Enforcement wants to hire two to three seasoned structured finance specialists for new posts in its structured and new products unit in Washington, D.C., New York and other SEC offices. The division is currently 1,000 strong.

Counterparties are increasingly requesting termination event clauses in documentation that can be triggered when a counterparty defaults, leading some observers to question whether the practice will expose the market to more systemic risk.

Another claim has been lodged today in the U.S. against UBS over Lehman Brothers-linked structured notes, alleging they were mis-sold. The claim filed by Naples, Fla.-based law firm Vernon Healy on behalf of a Houston businessman is for USD800,000 in compensatory and punitive damages.

Werner Langen, member of the European Parliament’s Economic and Monetary Affairs Committee, on Monday called for regulation of over-the-counter derivatives to distinguish between financial and non-financial institutions, with the former being more tightly regulated.

Regulators want to see a tape for capturing post-trade information on over-the-counter derivatives, akin to what is used in the equity markets.

European Union representatives will propose to G20 states in June to agree to ban naked credit default swaps trading on government-backed bonds, according to Nikolaos Chountis, a member of the European Parliament for Greece.

E.U. politicians have urged the European Commission and European Council not to implement a financial transactions tax on derivatives without agreement in writing from other international financial markets saying they will do the same.