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November 14, 2012

Daily coverage for the global derivatives industry

Top Stories

CFTC's O'Malia calls for fresh approach to cross-border rules
Scott O'Malia, a member of the Commodity Futures Trading Commission, said the agency should take a different approach to cross-border rules mandated by the Dodd-Frank Act. "First, the entire guidance should be scrapped and the document should be redrafted as a formal rule making that provides an opportunity for public comment and includes a cost-benefit assessment," O'Malia said. "Second, the proposal should provide a clear, consistent interpretation of the 'direct and significant' connection with a sufficient rationale for the extent of the commission's extraterritorial reach." AutomatedTrader.net (11/13)

Swaps brokers see dangers in CFTC rule interpretations
U.S. firms could be harmed by advice being handed out by the Commodity Futures Trading Commission to overseas firms on interpreting Dodd-Frank rules for the swaps market, swaps brokers say. "It's actually very evident that a lot of what the CFTC has done is harming the U.S.," said Mark Beeston of ICAP. Bloomberg (11/13)

Industry News and Trends

Exec voices concern about incoming margin regimes
William De Leon, head of portfolio risk management at Pacific Investment Management, expressed concern about margin rules for over-the-counter derivatives and futures. "Policymakers and regulators have been alerted to the issue, but it's not clear whether they fully understand the potential implications," De Leon said. "Part of that is a function of the fact that it's also not clear how much collateral will be required." Risk.net (subscription required) (11/13)

Derivatives market continues to contract, BIS says
The market for over-the-counter derivatives shrank 1% in the first half of 2012 compared with the second half of 2011. It was the second straight half-year contraction, according to the Bank for International Settlements. Total notional value came in at $639 trillion, compared with $648 trillion at the end of 2011. The market peaked in June 2011, at $707 trillion. International Financing Review (free content) (11/13)

Interdealer brokers get into exchange game to stay relevant
Interdealer brokers that handled over-the-counter derivatives trades are looking to reinvent themselves with the arrival of rules requiring central clearing. Among the options are to set up or buy an existing exchange to meet the new requirements. "It's looking more and more like taking the exchange bet is the way the market is panning out," said Will Rhode of TABB Group. Fox Business/Dow Jones Newswires (11/13)

Popularity of Brazil's derivatives market continues
Financial Times (tiered subscription model) (11/13)

Regulatory Roundup

CFTC extends deadline for CME to comply with reporting rules
The Commodity Futures Trading Commission has extended the deadline for CME Group to report trading data, a move that follows a lawsuit by the exchange operator over such compliance. CME wants to use its own swaps-data repository rather than reporting its trading data to a third party. The rules were due to go into effect Tuesday; CME now has until Dec. 4 to comply. Reuters (11/13)

Commentary: CFTC is a middleman in CME-DTCC dispute
Depository Trust and Clearing is supporting the Commodity Futures Trading Commission in a lawsuit brought by CME Group. However, the dispute is really between CME and DTCC, Stephen Foley writes. Financial Times (tiered subscription model) (11/13)

EU lawmakers struggle with Basel III
Key divisions remain after several meetings by EU lawmakers regarding draft law to require banks to increase capital and liquidity, calling into question a year-end deadline. "I would suggest you take a look at the calendar. I think it's quite obvious that Jan. 1 is quite dubious at the moment," said Philippe Lamberts, a member of the European Parliament's negotiation committee for the legislation. The Wall Street Journal/Dow Jones Newswires (11/13)

Banks express concern about Fed's Basel III plan
Financial institutions cautioned that the Federal Reserve's proposal to implement Basel III rules would increase systemic risk, limit credit and harm the industry. Financial Times (tiered subscription model) (11/13)

Opinion: Regulators should rethink Basel III rules
U.S. authorities have backed off a plan to require banks to meet Basel III rules starting Jan. 1. Apparently, the burden of compliance, particularly for smaller banks, led to the change of heart. As an alternative, regulators should enforce a requirement for increased capital and discard the rest of the complex rules, according to The Wall Street Journal. The Wall Street Journal (11/12)

CFTC's Chilton urges disaster preparedness
The New York Times (tiered subscription model)/DealBook blog (11/13)

SmartQuote

Many of our fears are tissue-paper-thin, and a single courageous step would carry us clear through them."

--Brendan Francis Behan,
Irish writer

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