Derivs - Regulation

2014 continued to be an active year for financial regulation in the EU, with a push to finalise much of the outstanding primary legislation on the regulatory reform agenda and to move towards implementation of regulation already in place. The derivatives market will be particularly affected by the new regulatory landscape and the market will face many new challenges into 2015 and beyond, which we consider further below.

Overall interest rate trading that was reported to swap data repositories last week increased by 420% from the previous week, according to data from the International Swaps and Derivatives Association. Overall credit default swap notional that was reported, also increased by 400% from the previous week.

End-users trading swaps could be exempted from posting margin on swaps not cleared by registered derivatives clearing organizations under a new Congressional rule amending the Dodd-Frank Act. Despite flaws in the original drafting, the amendment to the rule would be a substantive change to the legislation and would clarify the margin posting process, according to lawyers.

Market participants are unlikely to have documentation in place to meet the G20's initial margin and variation margin requirements in time for the December 2015 deadline, according to lawyers, who said the buyside faces the greatest challenge to comply.

Talks over a European Financial Transaction Tax have been revived since 2014’s European elections. The tax is now being deliberated between 11 key EU member states. Although the scope of its coverage appears to have shrunk, the uncertainty may lead to unforeseen costs for derivatives market participants. Gabriel Suprise reports.

Overall credit default swap notional that was reported to swap data repositories last week increased by 44% from the previous week, according to data from the International Swaps and Derivatives Association.

Harmonisation and crossborder issues are key concerns for the International Swaps and Derivatives Association as markets enter 2015. As Scott O’Malia, CEO of ISDA and former commissioner at the Commodity Futures Trading Commission, tells Beth Shah, regulators need to ensure that crossborder oversight is based on risk and not location.

A report from the Commodities Futures Trading Commission on central clearing for non-deliverable forwards warned of possible problems if a mandate is applied incorrectly, urging coordination and standardisation of practices, according to lawyers

The Japan Securities Clearing Corporation and its affiliates have been granted time-limited, no-action relief by the US Commodities Futures and Trading Commission to continue to conduct business despite the fact it has not yet been approved as a derivatives clearing organisation.

The Markets in Financial Instruments Directive took a leap forward today with the publication of technical advice and a consultation by the European Securities and Markets Authority that set out the implementation of transparency and trading requirements to a broad range of asset classes and products.

The Financial Conduct Authority is focusing its risk-based oversight efforts in four critical areas of the European Market Infrastructure Regulation for 2015 – trade reporting quality, clearing services provision continuity from clearing members, market readiness for the clearing obligation, and the bilateral requirements for non-cleared trades. This comes as February marks the first year anniversary of trade reporting under the regulation.

The European Commission has agreed to postpone the start of the frontloading requirement for cleared interest rate derivatives as proposed in the regulatory technical standards submitted by the European Securities and Markets Authority.