Settling disputes around clearing rules and incoming capital requirements are at the top of the European Commission's list of post-crisis reforms. Ensuring that capital rules don't conflict with banks' clearing of over-the-counter derivatives is also key, says Jonathan Hill, commissioner for financial services. "We must make sure that the cumulative impact of bank capital rules such as the leverage ratio and [the European Market Infrastructure Regulation] are not overly burdensome," Hill says.
Central counterparties have started to look more seriously at portfolio margining as a way to ease banks' collateral challenges. "Portfolio margining has become the 'topic du jour,' predominately driven by [Europe's revised Markets in Financial Instruments Directive], which will mandate CCPs to be open access and allows for the possibility of risk offsets on a much bigger scale," said Dan Maguire, global head of rates and foreign exchange derivatives at LCH.
Smart contracts utilizing blockchain technology might remove a need for central securities depositories if regulatory barriers are overcome, experts say. "Because I can maintain these contracts myself, I don't need to go to a CSD to authenticate the actual asset and get a report of what I own or am owed," said Markit's Jeffrey Billingham. "There is a big possibility to change the nature of how people interact with a CSD."
A proposal by Sen. Ron Wyden, D-Ore., would require derivatives users to pay tax on gains, which would be treated as ordinary income. "This proposal will help end the 'Tale of Two Tax Codes' and create one fair system with simple and straightforward rules that apply to everyone," said Wyden, the top Democrat on the Senate Finance Committee.
Eurozone banks may have to prove they can maintain and validate their internal models for credit risk management, sources say. The Single Supervisory Mechanism is likely to compare banks to see whether some have lower capital requirements than others for the same kind of activities, after efforts by the US Federal Reserve to issue guidance for more robust model risk management.
The Government Accountability Office is looking into how regulators, including the Commodity Futures Trading Commission and the Securities and Exchange Commission, work together to prevent crises, the GAO's Orice Williams Brown says. The GAO is also considering whether merging regulators might be beneficial.
The European Council has approved a one-year delay of implementation of the revised Markets in Financial Instruments Directive to Jan. 3, 2018. "The one-year postponement of the transposition and application dates will affect the provision of services for investments in financial instruments and the operation of regulated financial markets," according to the council.
The biggest threat to the US financial system is cyberrisk, said Securities and Exchange Commission Chair Mary Jo White. The SEC has found shortcomings at major securities exchanges, clearinghouses and dark pools, she said. "What we found, as a general matter so far, is a lot of preparedness, a lot of awareness but also their policies and procedures are not tailored to their particular risks," she said.
This symposium will provide an in-depth explanation of the ISDA Resolution Stay Jurisdictional Modular Protocol, how it relates to the previous ISDA Resolution Stay Protocols and its implications for market participants. This protocol was developed to aid the market in complying with regulatory requirements that oblige certain regulated entities to obtain from their counterparties a contractual recognition of the application of stays on or overrides of certain termination rights under the home-country special resolution regime of such regulated entity (Stay Regulations).