Deutsche Bank, Credit Suisse and Barclays are among European banks pulling back from exposures to client clearing derivatives because of increasing regulatory restrictions. US Commodity Futures Trading Commission data show a sharp move away from derivatives clearing, with Deutsche Bank reducing its client segregated assets to $3.1 billion by November 2016 from $12.5 billion in early 2014.
The UK should let the European Central Bank oversee London's euro-clearing business, and the UK and the ECB should share clearinghouse supervision, according to a Financial Service Negotiation Forum report.
The pound has dropped below $1.20 on currency markets for the first time since the "flash crash" in October, just before Prime Minister Theresa May gives a speech this week on Britain's plans for withdrawal from the EU. The pound's fall came after the Sunday Times of London reported that May plans to pursue a "hard Brexit" by withdrawing entirely from tariff-free trade with the EU.
Michel Barnier, who is negotiating Brexit terms on behalf of the EU, told a closed-door meeting of members of the European Parliament that the EU needs to have access to London's banks after Britain leaves the bloc, according to minutes of the meeting. "There will need to be work outside of the negotiation box ... to avoid financial instability" after Brexit, Barnier said.
Restrictions need to be applied when trading currencies in thin markets, the Bank for International Settlements said in a report. Guidelines that start in May are intended to prevent sharp currency devaluations similar to the "flash crash" of the British pound in October, the report said.
US banks are concerned about whether a Commodity Futures Trading Commission rule that lets them follow local margin rules, rather than US ones, applies to small Japanese banks when margin rules kick in March 1. "US dealers will be shut out from the market" if the rule doesn't apply, says Mai Shin of Goldman Sachs.
The International Accounting Standards Board is reviving a project that would require banks to incorporate recognition of their portfolio hedging in financial reports. The initiative, which was put on hold in 2014, might face difficulties again in light of a European Banking Authority survey in which most banks said they would take advantage of an International Financial Reporting Standards 9 exemption that lets them keep their existing framework.
European energy firms expect a new era for commodity regulation, including "some sort of reporting requirement becoming applicable to carbon trading in the coming months," writes Stella Farrington. Of interest are an exemption under Markets in Financial Instruments Directive II, position limits, clearing, Capital Requirements Directive IV, the Market Abuse Regulation and the Securities Financing Transaction Regulation.
Increased investment and growing consumer acceptance of digital currencies could help the global blockchain market to be worth as much as $7.74 billion by 2024, according to a report by Grand View Research. The most dramatic growth will be seen in the North American and Asian-Pacific regions, the report says.
Predictions of a large rebound in commodity prices and stocks are doubtful, despite improvement in the global economy, says T. Rowe Price Group CEO Bill Stromberg. "We, too, think earnings will grow ... but not by as much as the market might think," said Stromberg.
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