Derivs - Regulation

Reporting of over-the-counter and exchange traded derivatives to repositories is floundering in its aim to make trading more transparent, some seven months since reporting started in Europe. Market participants say a broken system consisting of multiple trade repositories could harbour risk, rather than reduce it.

The overall interest rate derivatives trading volume reported to swap data repositories last week was up 27% from the previous week, according to data from the International Swaps and Derivatives Association. This follows several weeks of consistent decline in the figures.

Some derivatives market participants are weary of using credit hubs as they act as one single point of failure if a transaction were to fail because many parties are involved, according to panellists at the SEFCON V conference in New York on Wednesday. Parties at risk include swap execution facilities, clearing houses, futures commission merchants as well as their clients, the conference heard.

The European Securities and Markets Authority (ESMA) has asked market participants if it should prescribe which counterparty should be responsible for the creation and transmission of the unique trade identifier (UTI) in trade reporting. The UTI allows two counterparties to pair and match two sides of the same trade at a trade repository, however confusion over how one is generated has blighted reporting since it became mandatory earlier this year.

Buyside firms are concerned that some swap execution facilities (SEFs) may make certain derivatives instruments made-available-to-trade (MAT), which competing SEFs or clearing houses will not have the ability to support, therefore negatively impacting the portfolios that they manage.

The Bank of England is to provide a liquidity back-stop to central counterparty clearing houses and brokers deemed critical to the stability of the UK financial system, shoring up so-called ‘too big to fail’ clearing houses in times of crisis.

Overall credit default swap notional that was reported to swap data repositories last week decreased by 21% from the previous week, according to data from the International Swaps and Derivatives Association. Overall interest rate derivatives trading that was reported, also saw a decrease of 17% from the previous week.

James Cawley, founder and ex-CEO of Javelin Capital Markets in New York, has joined BGC Partners as CEO of its swap execution facility, also based in New York.

Trade reporting under the European Market Infrastructure Regulation is not working, according to the Wholesale Markets Brokers' Association, which represents a large proportion of interdealer brokers in the market.

Bloomberg has launched a so-called List Trading tool for interest rate swaps on its swap execution facility, enabling market participants to improve operational efficiency.

The dust is still settling from the results of the Asset Quality Review and bank stress tests, but it seems clear that the catharsis European officials hoped for has not materialised. The AQR, in particular, was worthwhile and bank balance sheets are more transparent. But it doesn’t follow that Europe’s banks will now embark on a lending spree. Lack of demand remains the underlying problem, which could present a challenge for Monte dei Paschi di Siena. Meanwhile, deflation looms — a scenario, incidentally, that the stress tests didn’t consider.

The Hong Kong Exchange has extended its After Hours Futures Trading (AHFT) session by 45 minutes for its Hang Seng Index futures, H-Shares Index futures, Mini HIS futures, Mini HHI futures and renminbi currency futures. The close of the after hours futures trading clearing session will also be extended.