Derivs - Regulation

The U.S. Depository Trust & Clearing Corp. is using a color coding system that demarcates standardized over-the-counter trades from customized ones in its Deriv/SERV Trade Information Warehouse, and plans to reveal details of the non-standard trades in a few weeks time.

The volume of dealer and non-dealer firms that signed up to the Small Bang protocols, which put in motion an auction mechanism for settling restructuring credit events, is 2,105—more than the 2,095 adherents to the Big Bang in April.

The Securities and Exchange Commission and Commodity Futures Trading Commission are seeking more oversight of the newly launched central counterparty clearing platforms for over-the-counter derivatives, this time through managing margin requirements.

The International Swaps and Derivatives Association is expected to complete equity options documentation for closed markets in Asia—India, Malaysia, Korea and Taiwan—next month, with emerging markets in Europe following in October or November.

Some are questioning the effectiveness of central counterparty clearing in reducing systemic risk if all asset classes of over-the-counter derivatives are not catered to the way credit default swaps have been.

Regulators may ultimately look to have transparency into the over-the-counter derivatives market down to net exposures for each counterparty, according to Ananda Radhakrishnan, director of the division of clearing and intermediary oversight at the Commodity Futures Trading Commission.

An equity version of the International Swaps and Derivatives Association’s Credit Determinations Committee is due to be discussed at ISDA’s upcoming equity steering committee meeting in two weeks.

The Securities and Exchange Commission and Commodity Futures Trading Commission have reportedly decided which parts of the over-the-counter derivatives market each will oversee, with the SEC getting jurisdiction over credit default swaps and equity derivatives.

The U.K. High Court is set to decide Tuesday on another case involving disputed payment rights relating to a Lehman Brothers Holdings Inc. collateralized debt obligation. At issue is whether a so-called flip clause—allowing noteholders first rights to repayments over a defaulted counterparty—is enforceable in the U.K.

The International Organization of Securities Commissions and the Committee on Payment and Settlement Systems have teamed up to review their 2004 recommendations for central counterparties.

Regulators defended the U.S. Treasury Department’s proposals to reform the over-the-counter market in a discussion hosted by the Chamber of Commerce in Washington, D.C., this morning. Among the corporates expressing their concerns were Post-it products maker 3M and medical supply firm Zimmer.

Credit default swaps referencing Lear Corp. were settled at 38.5%, Markit and Creditex determined in an auction today. The result means sellers of protection on the company’s bonds will pay out 61.5 cents on every dollar of protection sold. Loan-only CDS were valued at 66%, meaning buyers of protection will recover 34.