Derivs - Regulation

Regulators failed to reach agreement over the text of the Markets in Financial Instruments Directive at the eleventh hour last night, reneging on a prior agreement over commodity exemptions to the definition of a financial instrument in Annex I, Section C (6) of the text.

Global systemically important financial institutions are hiring more risk management specialists familiar with counterparty risk management, clearinghouse frameworks and the Committee on Payment and Settlement Systems of the Bank for International Settlements and the International Organization of Securities Commissions Principles for Financial Market Infrastructures in a bid to better access the robustness of CCPs.

Rules from the U.S. Commodity Futures Trading Commission that require derivatives to be traded on a swap execution facility have resulted in fragmented liquidity and decreased derivatives trading volumes, according to a survey conducted by the International Swaps and Derivatives Association.

The launch of client clearing in Japan next February could face hurdles due to the lack of clients signing up for the service.

The European Securities and Markets Authority has reported that European Member States’ sovereign credit spreads have tightened by around 26 basis points since the ban on uncovered credit default swaps in March 2012, according to a report published by the European Commission.

LCH.Clearnet has begun offering client clearing for single name credit default swaps with the addition of 187 names to its CDS clearing service.

Second-tier banks and non-financial companies are most likely to benefit from credit and debt valuation adjustment guidance published by the International Valuation Standards Council last week, according to Dmitry Pugachevsky, research director at Quantifi in New York.

Initial margin requirements for clearing interest rate swaps could force buysiders to turn to futures to avoid the collateral cost of clearing. That’s the view of Luke Hickmore, investment director of credit at Scottish Widows Investment Partnership, speaking at the Futures Options World Derivatives World Conference in London on Tuesday.

The Volcker Rule, which was approved by five regulatory agencies on Tuesday, is fundamentally flawed and imposes significant obligations upon market participants at a considerable cost, according to Scott O’Malia, Commissioner at the U.S. Commodity Futures Trading Commission.

The International Swaps and Derivatives Association has sought understanding from the Basel Committee on Banking Supervision and the International Organization of Securities Commissions’ Working Group On Margin Requirements to develop a standard initial margin model for margining non-cleared derivatives.

New swap execution facilities are going to struggle to compete with other more established SEFs in 2014, according to Will Rhode, principal, director of fixed income at TABB Group, in New York.

David Wright, secretary general of the International Organization of Securities Commissions, is concerned by the current trade repository system, noting that many are either not connected or are facing restrictions.