CME Clearing Europe starts clearing rate swaps | Cypriot deal drives up CDS covering insurers and banks | Suntech misses debt payment
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March 19, 2013
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Russian court ruling worries derivatives industry
A Russian court has allowed a corporation to terminate a five-year interest-rate swap with UniCredit early without requiring an early-termination fee, which has left industry members questioning the future of swaps trading in the country. "This is a very worrying development, demonstrating that a Russian court may lack sophistication and the ability to appreciate the commercial rationale of complex financial transactions," said Konstantin Kroll of Jones Day. The case raises questions as ISDA prepares to publish an opinion on whether netting of trades should be allowed in Russia. (subscription required) (3/19)
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CME Clearing Europe starts clearing rate swaps
CME Group has received regulatory approval from the U.K.'s Financial Services Authority and has started clearing interest-rate swaps in London. The venture, called CME Clearing Europe, handles seven currencies and will compete with LCH.Clearnet. Royal Bank of Scotland, Goldman Sachs, HSBC, Credit Suisse, BNP Paribas, JPMorgan Chase and Nomura are connected to the new venture. Morgan Stanley, UBS and Citibank are expected to join soon. Reuters (3/18), Financial Times (tiered subscription model) (3/18), The Wall Street Journal (3/18)
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Industry News and Trends
Cypriot deal drives up CDS covering insurers and banks
Credit default swaps covering the senior bonds of 25 lenders and insurers have jumped 19 basis points, as traders worry that a deal in Cyprus will set a precedent for bondholders to take a loss in national rescues. Bloomberg (3/19)
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Suntech misses debt payment
Suntech Power Holdings, a Chinese company listed in the U.S., has defaulted on a bond payment. While some debt holders are negotiating a repayment agreement, others are preparing to take the company to court. The Wall Street Journal (3/18)
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EEX plans to switch gas-trading system to Trayport
The European Energy Exchange will cooperate with Powernext, pending regulatory approval, by switching to system provider Trayport. "In addition to the existing EEX gas trading systems, 24/7 spot trading in natural gas as well as derivatives trading will be probably available in May 2013 on the Trayport Exchange Trading System," according to EEX. Reuters (3/18)
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Regulatory Roundup
Analysis: Libor issues change way benchmarks are viewed
Problems with benchmark interest rates, including the London Interbank Offered Rate, and how they are determined are prompting a renewed focus on the benchmarks. Financial Times (tiered subscription model) (3/18)
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BIS pushes bigger benchmark-rate role for central banks
The Bank for International Settlements has released a paper suggesting that the London Interbank Offered Rate and other benchmark rates should be replaced with rates that are based on actual bank transactions. The BIS also says central banks should have a bigger role in the process. "It is clear that central banks must play an important role in supporting the development of alternative reference rates," BIS Chairman and Bank of England Governor Mervyn King said. Reuters (3/18), Bloomberg (3/18)
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Bipartisan support is seen for SEC nominee White
Democrats and Republicans have expressed support for Mary Jo White ahead of a committee vote today on her nomination to lead the Securities and Exchange Commission. An easy committee vote could lead to a quick Senate confirmation, says Mark Calabria of the Cato Institute. "If they get her through the committee with a unanimous vote, then I suspect they'll try to move her to the floor the next day," Calabria said. Bloomberg (3/19)
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GOP economist reportedly is examined for SEC post
Michael Piwowar, the Senate banking committee's head Republican economist, reportedly is being vetted for a spot on the Securities and Exchange Commission. If Piwowar is nominated and confirmed, he will be the only economist on a panel that traditionally comprises lawyers. He could occupy the seat of GOP Commissioner Troy Paredes, whose term ends in June. Bloomberg (3/18)
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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 devil loves nothing better than the intolerance of reformers."
-- James Russell Lowell,
American poet
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