ISDA dailyLead

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March 1, 2013

Daily coverage for the global derivatives industry

Top Stories

Wetjen reportedly suggests CFTC alter proposed SEF rules
Mark Wetjen, a member of the Commodity Futures Trading Commission, has recommended that the agency change proposed regulations governing swaps-execution facilities, sources say. Wetjen reportedly wants the CFTC to abandon a proposal that would force institutional investors to gather "requests for quote" from five counterparties. Financial Times (tiered subscription model) (2/28), The Huffington Post (2/28)

CFTC struggles to develop swaps-oversight system
The Commodity Futures Trading Commission has found it difficult to realize the Dodd-Frank Act's goal of transparency on swaps, especially amid a dispute involving CME Group and Depository Trust and Clearing, Silla Brush writes. Bloomberg (3/1)

Industry News and Trends

Banks advise clients to capitalize on debt-insurance difference
Morgan Stanley and JPMorgan Chase, facing a possible flare-up of Europe's sovereign-debt crisis, are recommending that clients hedge themselves through the difference between the price of short- and long-term bond insurance. "Credit volatility and curve flatteners remain our preferred hedges," Morgan Stanley's Andrew Sheets wrote in a note. "The greatest risk to European credit remains a return of sovereign-led systemic risk." Bloomberg (2/28)

Cross-margining will help ASX win market share, exec says
The Australian Securities Exchange says it plans to provide cross-margining between over-the-counter and exchange-traded derivatives when it launches clearing for OTC derivatives this year. The move will help the exchange win market share, ASX's Rohan Delilkhan says. However, concerns have been raised that there is not enough liquidity in Australia's OTC market to sustain more than one clearinghouse. Risk.net (subscription required) (2/28)

Argentine bonds drop and CDSs rise amid default threat
In U.S. court, attorney Jonathan Blackman said Argentina would rather stop payments to creditors who had agreed to restructure debt than agree to pay creditors who had held out. The news sent Argentina's bonds down and drove up credit default swaps covering the nation's debt. Bloomberg (2/28)

DTCC partners with CUSIP on LEI application process
Depository Trust & Clearing and CUSIP Global Services say they're working together on an application process for legal-entity identifiers. The firms want to streamline the process by allowing users to apply for Commodity Futures Trading Commission Interim Compliant Identifiers and CUSIP numbers at the same time. CICIs are a precursor to LEIs. Securities Technology Monitor (2/28)

Commentary: Derivatives are following equities' path from 1930s
The position of interest-rate and credit derivatives is not unlike that of equities in the 1930s, Andrew Waxman writes. Joseph Kennedy, the first leader of the Securities and Exchange Commission, worked to establish transparency while simultaneously luring participants to return to the market, Waxman writes. AdvancedTrading.com (2/28)

Regulatory Roundup

Democratic lawmakers reintroduce derivatives-transaction tax
Derivatives, including futures, would face a 0.03% transaction tax under legislation introduced this week by Rep. Peter DeFazio, D-Ore., and Sen. Tom Harkin, D-Iowa. The pair floated similar bills in recent years, but the legislation never took hold. "There is no question that Wall Street can easily bear this modest tax," Harkin said. Platts (2/28)

CFTC's Gensler suggests Libor replacements
Commodity Futures Trading Commission Chairman Gary Gensler says a rate determined by a traded market, such as overnight indexed swaps, should replace the London Interbank Offered Rate. "Given what we know now, it's critical that we move to a more robust framework for financial benchmarks, particularly those for short-term, variable interest rates," Gensler said. Risk.net (subscription required) (2/28)

Commodity-derivatives tax in India would hurt, critics say
Indian Finance Minister Palaniappan Chidambaram has proposed a 0.01% transaction tax on non-agricultural commodity derivatives. Opponents say the levy, though limited, could significantly shrink liquidity in commodity markets and drive participants toward equities. LiveMint.com/The Wall Street Journal (India) (2/28), Reuters (2/28)

Editor's Note

Correction
A summary in Wednesday's dailyLead incorrectly characterized the Securities and Exchange Commission's request for banks to notify investors about the valuation of some securities backed by equity derivatives sold during the past two years. Banks are being given 10 days to notify the SEC about whether they will comply with the rule. Many banks began notification as early as May. The dailyLead regrets the error.

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