CFTC still working to finalize SEF rules, O'Malia says | FX derivatives protected Chile during crisis, BIS says | ICE Clear Credit forgoes clearing of single-name CDS
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March 18, 2013
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ESMA offers warning and guidance on central counterparties
The European Securities and Markets Authority has cautioned regulators that they need to make sure trades among clearinghouses do not create financial instability. ESMA's warning also comes with recommendations on how to manage such risks, including monitoring collateral treatment closely. The Wall Street Journal/Dow Jones Newswires (3/15)
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CFTC still working to finalize SEF rules, O'Malia says
Scott O'Malia, a member of the Commodity Futures Trading Commission, says the agency continues to work on final rules governing swap-execution facilities, but that progress has been slow. "We are not as close as you might think. As long as the SEF rules are being negotiated in the press, we are not making headway, and that's how things are playing out right now. We need to go back and get a negotiation going because I see no progress. I've seen no progress in the past two weeks,” O'Malia said. (subscription required) (3/15)
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FX derivatives protected Chile during crisis, BIS says
By using foreign exchange derivatives, Chile was able to navigate the global financial crisis without much of the stress endured by similarly positioned emerging markets, according to a report by the Bank for International Settlements. "The case of Chile suggests that resilient FX derivatives markets can supplement foreign reserves in dampening severe episodes of financial stress," the report says. The Wall Street Journal/Dow Jones Newswires (3/17)
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Industry News and Trends
ICE Clear Credit forgoes clearing of single-name CDS
The Securities and Exchange Commission's policy on portfolio margining has prompted ICE Clear Credit to decide against clearing single-name credit default swaps. The SEC recently "issued a temporary approval requiring broker-dealer futures commission merchants to charge two times the initial margin requirement of the [central counterparties]," said Peter Barsoom, chief operating officer of ICE Clear Credit. "This was unfortunate, so we made a decision, based upon that unexpected development ... that it would be better not to offer single-name clearing under those conditions than to make single names available." (subscription required) (3/18)
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Integrity of benchmark rates is questioned
Investigations into possible manipulation of the London Interbank Offered Rate and other benchmark rates have prompted several banks to withdraw from panels that set the rates. That exodus has prompted questions about the benchmarks and whether firms should be required to participate in the rate-setting process. Financial News Online (U.K.) (subscription required) (3/19)
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Northern Trust gears up to take on bigger swaps role
Northern Trust has shuffled its operations to aid clients in the management of over-the-counter derivatives central clearing. The reorganization allows the firm to capture swaps trade information and connect with third parties so trades can be routed to electronic matching platforms, exchanges and clearinghouses. The Trade News (U.K.) (3/15)
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Nasdaq unit aims to capitalize on derivatives rules
EU rules require banks, utilities and other firms to route certain over-the-counter derivatives trades through a central clearinghouse. Nasdaq OMX Group's commodity unit in Oslo, Norway, is striving to capitalize on the rules. The division seeks to gain a larger share of electricity-market clearing and will expand its range of contracts. Bloomberg Businessweek (3/15)
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Regulatory Roundup
Cross-border harmonization is needed, MAS chairman says
Trade repositories and central counterparties have cropped up across Asia as regulators implement rules governing over-the-counter derivatives. However, Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore, warns that the changes could undermine the original intent of the overhaul. "We are seeing a proliferation of CCPs and trade repositories set up in Asia," Shanmugaratnam said. "While this will provide choice to Asian market participants, it may also increase risks and lead to higher costs." (subscription required) (3/18)
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CFTC may face legal challenge in Dodd-Frank implementation
Bloomberg recently threatened to sue the Commodity Futures Trading Commission over the differences in the proposed treatment of swaps and swap-futures margins. Swaps and swap-execution facilities like the one Bloomberg is planning to launch will have higher margin requirements than swap futures. While some analysts view this as a positive, believing it will funnel more trading to more uniform swap-futures products, others believe it will reduce investors' abilities to accurately hedge their trades and increase systemic risk. The Trade News (U.K.) (3/15)
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Senate inquiry might help SEC make case against bank
The Senate's investigation into derivatives losses by JPMorgan Chase has resulted in more than 900 pages of evidence that the Securities and Exchange Commission could use if it were to open an inquiry into the bank. The SEC's line of inquiry likely would follow whether JPMorgan adequately disclosed losses to investors, former SEC enforcement attorney Jacob Frenkel says. Bloomberg (3/16)
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ISDA News and Events
Free ISDA paper: "Non-Cleared OTC Derivatives: Their Importance to the Global Economy"
Noncleared over-the-counter derivatives create significant value to the economy, including enabling companies and governments to manage risk and helping pension funds meet obligations to retirees. Regulatory proposals on margin requirements pose a threat to the continued functioning of this vital market segment. This free ISDA paper explains noncleared OTC derivatives, who uses them, the reason some -- but not all -- will be cleared and the impact of regulatory proposals.
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The injury we do and the one we suffer are not weighed in the same scales."
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