Derivs - Regulation

The lack of clarity over whether the UK and the EU will clinch a trade deal before the end of the year also makes it harder for those in financial markets to know whether equivalence decisions will be granted for the trading obligations for derivatives (DTO) and shares (STO).

As market participants prepare for the end of the Brexit transition period on December 31, the European Securities and Markets Authority has said it will not change requirements on where derivatives can be traded, even though this could cause problems for UK branches of EU investment firms.

The US Commodity Futures Trading Commission and the Bank of England signed a memorandum of understanding on Tuesday regarding the oversight of derivatives clearing.

The International Swaps and Derivatives Association broke ground earlier this month in Libor transition when it the US Department of Justice approved its derivatives fallbacks. Market participants now face a busy few weeks working out if the protocol fits their differing needs.

Fannie Mae’s and Freddie Mac’s drive to buy floating rate loans that reference the secured overnight financing rate is charging up a nascent market in interest rate caps that reference the Libor replacement.

The European Commission on Tuesday gave the derivatives clearing industry a lifeline by granting an 18 month equivalence decision that will allow European firms to keep using UK central counterparties.

As political tensions rise over the UK-EU trade negotiations, concerns in the derivatives market are growing as the lack of equivalence between trading venues causes jitters once again.

The Commodity Futures and Trading Commission — the top derivatives regulator in the US — laid out the risk that climate change poses to financial stability in stark terms in a report it released on Wednesday.

The tension between the EU and UK over Brexit ratcheted up this week, with the prospect of the UK reneging on the EU-UK Withdrawal Agreement rearing up. Rising political tension could now boil over into talks on financial services.

Market observers believe that investors in open-ended debt funds need to be disincentivised more than they are at present from scrambling to liquidate their holdings in a market downturn.

Derivatives counterparties breathed easy in March when the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions announced a year’s delay in the introduction of initial margin rules. But in Europe — with the deadline already passed — legal confirmation has still not appeared.

The European Securities and Markets Authority (ESMA) has said that making sure staff could work remotely hindered the ability of financial firms to work on regulatory and IT projects, in a final report calling for the implementation of a set of rules on settlement discipline — including on mandatory buy-ins — to be delayed until 2022.

Klaus Löber has been selected by the European Securities and Markets Authority as chair of its CCP supervisory committee. ESMA has also picked two other members; all three will be assessed by the European Parliament.

Some of the world’s top-tier financial institutions want changes in how central counterparty clearing house (CCP) resolutions are executed.

A decision by the US Commodity Futures Trading Commission (CFTC) last week regarding European Union multilateral trading facilities (MTFs) and organised trading facilities (OTFs) could be a glum preview of the UK’s cross-border regulatory affairs.

The US Commodity Futures Trading Commission (CFTC) was set to back a significant revision of its cross-border mandate on Thursday, pulling back from overseeing non-US swap transactions.

Commodity derivatives trades are primed for a fillip from European regulators as the European Commission plans to relax position limits on their trading.

Central counterparty clearing houses (CCPs) could face increased attention and greater regulation after coming through the Covid-19 crisis in good shape, Fitch Ratings analysts said this week.

A new US Commodity Futures and Trading Commission rule to restrict post-trade name give-up on swap execution facilities (SEFs) is causing some confusion in the market as participants work to a tight deadline.

The European Commission has given the derivatives clearing market some hope, as it signalled on Thursday that it was going to extend its equivalence agreement with the UK.

Four trade bodies have called for the EU Benchmarks Regulation (BMR) to be changed, in order to prevent what they see as the potentially disastrous consequences of third-country benchmarks ceasing to be allowed from the end of 2021.

Post-trade name give-up on swap execution facilities (SEFs) is set to be consigned to history as a majority of commissioners on the Commodity Futures Trading Commission (CFTC) came out in support of a rule that will largely restrict the practice.

Exchange leaders have criticised some of the measures that regulators introduced during the height of the Covid-19 crisis that restricted short selling.

The European Parliament reached a quicker than expected agreement on central counterparty clearing house recovery and resolution on Tuesday night, settling on a framework for second skin in the game requirements and also pushing open-access rules out for another year.

European Union institutions failed on Friday to reach a deal on a clearing resolution scheme, due to disagreements on whether the second skin in the game should be prefunded or not. The EU Commission is now suggesting a middle way that will be debated on Tuesday evening.

Members of the European Parliament and representatives of member states hope to clear the last hurdles for an agreement on a draft regulation on recovery and resolution of central counterparty clearing houses (CCPs) by the end of this month.

The European Securities and Markets Authority (ESMA) has given potential leeway to national competent authorities (NCAs) considering the introduction of open access rules next month.

Chris Giancarlo was the 13th chairman of the Commodity Futures Trading Commission, the US’s top derivatives regulator, until last year. Before his five years at the helm of the CFTC he enjoyed a successful career on Wall Street, which included a 13-year stint as executive vice-president of GFI Group. Since leaving the commission he has focused on digital asset technology, in particular the development of a digital dollar. GlobalCapital caught up with Giancarlo to discuss regulation during the coronavirus crisis and the future of cryptocurrencies.

The US Commodity Futures Trading Commission’s global markets advisory committee, a steering group made up of market participants, has recommended that the regulator provide a further six month grace period for compliance with initial margin requirements.

The Autorité de Marchés Financieres (AMF) has decided not to lengthen a ban on short selling, but some market participants who opposed the action see it returning when extreme volatility next strikes the markets.

France's Financial Markets Authority (AMF) is weighing whether or not to extend a ban on short selling this week, as industry bodies warned the ban has harmed markets.

As the June West Texas Intermediate crude oil futures contract’s expiry nears, the US Commodity and Futures Trading Commission has warned trading venues, clearinghouses and futures commission merchants that negative commodities futures prices could return.

The Bank of International Settlements has indicated that regulators may need to review central counterparty clearing house margin policies after the coronavirus crisis.

Open access to central counterparty clearing houses may face further delays, it emerged this week, leaving derivatives market participants divided over whether it will actually become part of European regulation.

IHS Markit’s announcement this week that it had acquired regulatory technology firm Catena Technologies marked another move towards consolidation in the industry.

Open access, the much fought over and delayed section of the second Markets in Financial Instruments Directive (MiFID II), is facing further pushback, according to a European Council document seen by GlobalCapital.

Brian Quintenz, one of the Republican commissioners on the US Commodity Futures Trading Commission, has announced that he will not seek another term at the regulator.

The Covid-19 coronavirus is complicating the Libor transition and could even damage the risk profile of CME Group and LCH, Fitch Ratings has warned.

Market participants have dismissed the viability of Turkey extending its swap line arrangements with the US Federal Reserve this week to enhance the country's access to dollars. They also noted that little has happened to change their bearish outlook on the sovereign.

European short sellers were dealt another blow on Wednesday as the Autorité des Marchés Financiers (AMF) decided to extend its ban on short selling.

The coronavirus pandemic has put some major market regulation on ice, but not the Ibor transition, the most far-reaching financial reform still on market participants’ to-do lists.

Reviews of key areas of legislation such as MiFID II, bank capital requirements and Solvency II have been pushed into the future, as the European Commission puts green and digital regulation first.

Prop trading firm DRW has selected OpenGamma, the regulatory technology provider, to manage derivatives margin in its treasury.

The derivatives industry had a surprisingly quick win late on Friday when the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO) authorised a one-year extension to the final phases of initial margin (IM) regulation.

The US Federal Reserve’s unprecedented injections of dollar liquidity calmed conditions after a chaotic month in the cross-currency swap market’s short-end, but traders are looking at its effects on the primary bond markets as the next test.

A financial industry fightback against bans on short selling by some jurisdictions is picking up pace, as lobbyists argued against the restrictions this week.

US market participants’ can now use their preferred method of calculating counterparty credit risk (CCR) for derivatives, after US regulators brought the adoption of SA-CCR forward.

Financial market trade associations are pushing regulators to give relief on incoming regulatory requirements on initial margin, pleading that the coronavirus is causing too much disruption to their members’ business lines.