Commentary: Western rules might hit Asian derivatives markets | Investors again turn to synthetic CDOs | HKEx plans to rework stock options
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March 21, 2013
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House committee approves bills focused on derivatives rules
The House Agriculture Committee has approved several bills meant to halt some of the unintended consequences of the Commodity Futures Trading Commission's swaps-dealer rules that are mandated by the Dodd-Frank Act. One bill would help government-owned utilities hedge risk related to power and fuel prices. The bills face an uphill battle in Congress. Reuters (3/20), Bloomberg (3/20), Agri-Pulse.com (3/20)
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Commentary: Western rules might hit Asian derivatives markets
ISDA's Keith Noyes explains how European and U.S. rules could drive foreign players from Asia's derivatives markets. The European Market Infrastructure Regulation and the Dodd-Frank Act contain measures that could prevent market participants in Europe and the U.S. from dealing with many third-country clearinghouses. The rules could significantly hit liquidity in Asian markets, Noyes writes. Risk.net (subscription required) (3/20)
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Industry News and Trends
Investors again turn to synthetic CDOs
Synthetic collateralized debt obligations are returning to popularity as investors look for alternatives to bonds. "That's a valid strategy for this part of the credit cycle: Don't stretch on credit quality, but rather leverage your exposure to better-quality credit," said Ashish Shah of AllianceBernstein. Bloomberg (3/20)
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HKEx plans to rework stock options
Hong Kong Exchanges and Clearing has announced several changes to its stock options market, including fee reductions, as part of a plan to increase market liquidity and attract increased turnover. "We are revamping our stock options to capture new opportunities created by regulatory changes that have increased demand for exchange-traded derivatives and central counterparty clearing," said Romnesh Lamba of HKEx. The Trade News (U.K.) (3/20), South China Morning Post (Hong Kong) (free registration) (3/21)
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Rabobank opts to leave equity-derivatives business
Rabobank plans to exit the equity-derivatives business, citing concerns about strategy and regulatory cost. No decision has been reached on whether the bank will sell its book or let trades wind down, says Arjo Blok, head of global financial markets. Risk.net (subscription required) (3/20)
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ICE's Sprecher is at ease in the spotlight
IntercontinentalExchange's move to acquire NYSE Euronext has placed a spotlight on one man: Jeff Sprecher. However, the founder, chairman and CEO of ICE doesn't appear to be letting the attention bother him. Sprecher recently sounded off on issues including the interest-rate environment, the importance of U.S. capital markets, Enron and accessing Chinese markets. Regarding exchange mergers and acquisitions, Sprecher says, "M&A has not so much been about trying to get big for scale sake. It's about trying to have enough pieces to solve customer problems." SmartBrief/SmartBlog on Finance (3/20)
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Regulatory Roundup
Rep. Himes looks for middle ground on Dodd-Frank rhetoric
Rep. Jim Himes, D-Conn., who co-sponsored a bill to change Dodd-Frank Act measures relating to some derivatives and private-equity fund investment advisers, recognizes that changing the law is a difficult task. "The modification of Dodd-Frank is a tricky thing politically," Himes said. "The reality is Dodd-Frank is the creation of man and therefore not perfect." Politico (Washington, D.C.) (3/20)
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European transaction tax prompts concerns about collateral
The European Commission's proposal to tax financial transactions could raise €35 billion annually, but market participants are concerned the levy would put a squeeze on collateral. "It could drastically reduce the mobility of collateral and drastically increase transformation costs, making collateral more inefficient from a mobility perspective," said Staffan Ahlner of Bank of New York Mellon. "We don't believe it is the intention of the proposal, but it is one of the unintended consequences." International Financing Review (free content) (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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