Basel Committee relaxes rules on banks' derivatives exposure | Global regulators reportedly close to completing Basel III | US Treasury report: Changes don't require new rules
October 12, 2017
Commodities Insight SmartBrief
Regulatory insight and top news for commodities markets
Regulatory & Compliance
Basel Committee relaxes rules on banks' derivatives exposure
The Basel Committee on Banking Supervision is giving national regulators broad flexibility in how they let banks calculate liabilities from their derivatives exposures. The Net Stable Funding Ratio change lowers the floor supervisors can allow under the net stable funding ratio to 5% from 20%.
Bank for International Settlements/News release (10/2017),  Reuters (10/6),  Financial Times (tiered subscription model) (10/6),  Politico Pro (subscription required) (10/6) 
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Global regulators reportedly close to completing Basel III
The Basel Committee on Banking Supervision is close to reaching an agreement on capital rules for banks, sources said Tuesday. France has complicated the final negotiations -- expected to take place at this week's International Monetary Fund meeting in Washington, D.C. -- by reportedly setting a hard line against the introduction of a floor.
Reuters (10/10),  Financial Times (tiered subscription model) (10/10) 
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US Treasury report: Changes don't require new rules
The US Treasury released a report that outlines 91 technical fixes aimed at boosting the financial markets. Rather than proposing legislative changes, the report notes the Commodity Futures Trading Commission and the Securities and Exchange Commission could simply tweak existing rules and not endorse international rules unless they meet domestic objectives.
Reuters (10/6),  The New York Times (free-article access for SmartBrief readers) (10/6),  The Hill (10/6) 
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CFTC's Quintenz calls swaps trading threshold meaningless
New Commodity Futures Trading Commission member Brian Quintenz wants the agency to reconsider lowering the annual trading threshold to $3 billion from $8 billion, a move that some energy and agricultural firms say could force them out of the market. Quintenz called the dollar amount "a meaningless and ambiguous metric."
Bloomberg (free registration) (10/9) 
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CFTC commissioner wants rethink on algo-trading rules
The Commodity Futures Trading Commission's newest member, Brian Quintenz, says the agency should study algorithmic trading more before implementing regulations. "The agency needs to reset its posture on this issue, and we need to have a serious discussion about the finite circumstances under which automated, algorithmic activity can create large-scale market disruptions," Quintenz said.
Risk (subscription required) (10/4),  Financial Times (tiered subscription model) (10/4) 
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ESMA reconsiders gas, power spot month definition
The European Securities and Markets Authority plans to clarify what qualifies as a spot month in cash-settled gas and physically settled power derivatives contracts by the end of the month. Participants say a clarification will allow a level playing field across European markets.
Risk (subscription required) (10/6) 
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CFTC's overseas reach might be limited, lawyers say
Recent court decisions that limit the Commodity Exchange Act from extending overseas could restrict the Commodity Futures Trading Commission's ability to bring misconduct cases to US courts, lawyers say. "This is a big deal because the assumption has been for many, many years that if you had an impact on the US derivatives market, both from a civil-litigation and from a CFTC-enforcement standpoint, you are at risk in the US as a matter of jurisdictional power," said former CFTC counsel Daniel Waldman, head of derivatives at Arnold & Porter Kaye Scholer.
Risk (subscription required) (10/5) 
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Hot Topics
This Week in Commodities
Commentary: Commodities holding up even as Fed tightens
The Federal Reserve's stated intention to drive up interest rates and reduce its balance sheet would normally have a negative effect on commodity prices, Shelley Goldberg writes. But that's not the case, in part because of globalized downward pressures on wages but also because central banks' stimulus efforts tended to point investors to markets other than commodities, a trend that is reversing now as the Fed tightens, Goldberg writes.
Bloomberg (free registration) (10/9) 
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Energy-debt issuance surges as oil stabilizes
With oil prices stabilizing around $50 a barrel, a wave of debt issuance has arisen as energy firms seek to refinance. "Bankers are calling any company that they can that has a need to refinance right now, when the market is strong and covenant protections are weakening," says Scott Roberts, Invesco's head of high-yield investments.
Bloomberg (free registration) (10/6) 
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Investors dump Kobe Steel shares after falsified data report
Stock market traders issued a flood of sell orders for Kobe Steel shares after the Japanese company admitted it had falsified inspection certificates to indicate that its aluminum and copper products complied with customers' specifications. The share price Tuesday fell 21.9%.
Nikkei Asian Review (Japan) (tiered subscription model) (10/10) 
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WTI-Brent spread making US oil more competitive
The US shipped about 1.6 million barrels of oil per day last week, above the four-week moving average from 2016, and export volumes are expected to increase as West Texas Intermediate continues to trade at a significant discount to Brent crude, according to PIRA Energy analysts. WTI remains cheaper than all major traded crude grades except for Western Canadian Select.
United Press International (10/10) 
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Vitol: US oil production growth to flatline after 2018
US oil output could increase by 500,000 to 600,000 barrels per day in 2018, leading to a rise in costs that will likely drag growth to a standstill in the years to follow as some production becomes unprofitable, according to Ian Taylor, president and CEO of oil trader Vitol. Slowing US production growth along with strong global demand should bolster oil prices, lifting them above the $50-to-$60-per-barrel range, Taylor added.
Reuters (10/10) 
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All eyes on Glencore as zinc price-boosting strategy plays out
Glencore's bid to raise the price of zinc by cutting a third of its output has paid off, and now the question is what Glencore plans next.
Financial Times (tiered subscription model) (10/5) 
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CME Group Insights
Markets take a dim view of European disunity
Currency markets are consistently signaling a strong preference for European unity, even as many political forces lean in the other direction, CME Group Senior Economist Erik Norland writes. Options markets, however, have exhibited little concern amid central banks' monetary easing, a situation that may change as the Federal Reserve reverses course.
CME Group (10/9) 
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