ICE, NYSE Euronext submit proposed merger to European Commission | Collateral emerges as big concern in derivatives market | City Index Asia introduces CFD trading platform
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March 22, 2013
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Clearing uncertainty surrounds expiration of CFTC exemption
Many non-U.S. firms may be redefined as a "U.S. person" and thus need to comply with Dodd-Frank Act clearing regulations when a Commodity Futures Trading Commission exemptive order expires in July. "It is a real problem not knowing whether your counterparty is a U.S. person or not. Maybe they are not today, but then when the exemptive order runs out on July 12 and the definition changes, all of a sudden they are a U.S. person," says Scott Cammarn of Cadwalader, Wickersham & Taft. (subscription required) (3/22)
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ICE, NYSE Euronext submit proposed merger to European Commission
NYSE Euronext and IntercontinentalExchange have asked the EU to assume jurisdiction and approve their $8.2 billion merger. The next 40 workdays are crucial to the deal. By submitting the deal directly to the European Commission, ICE and NYSE Euronext will avoid separate reviews in the U.K., Spain and Portugal. Bloomberg (3/21), Financial Times (tiered subscription model) (3/21), The Wall Street Journal (3/21)
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Industry News and Trends
Collateral emerges as big concern in derivatives market
Collateral is in increasing demand in the post-crisis financial world, prompting concern about availability and whether its pursuit will create additional risk. Market participants and experts worldwide are expressing concern about collateral requirements for derivatives. "The scale of the need could be enormous," ISDA Chairman Stephen O'Connor said. The Banker magazine (U.K.) (3/2013)
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City Index Asia introduces CFD trading platform
City Index Asia has launched a platform to trade contracts for difference, an instrument not allowed in the U.S. but popular in the U.K. for leveraging exposure to difficult-to-access foreign markets. Investors in Singapore are set to increase use of CFDs to increase exposure to world markets, Chief Operating Officer Goh Choh Tong says. The Wall Street Journal/MarketBeat blog (3/21)
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Investors in reverse convertibles could see bigger tax bill
A trend of treating reverse convertibles as "single income-bearing derivative contracts" instead of two instruments could double the tax bill for some investors, experts say. The change is occurring partly because brokers who bear the burden of tax reporting are simplifying the process, says Remmelt Reigersman, a partner at Morrison & Foerster. "It's a pain for them to have to change their reporting systems for the bifurcation treatment when the majority of other structured products are treated as single derivatives contracts," Reigersman said. (subscription required) (3/21)
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Fund manager suggests ways to avoid "London whale"-type issues
JPMorgan Chase's "London whale" trades were "not a hedge, it was a bet," Saba Capital Management founder Boaz Weinstein said at an industry event. Weinstein was among those on the other side of the JPMorgan trades. Weinstein recommended that regulators establish "a rule that any time anyone wants to make an investment ... greater than $10 billion, the boss has to sign off on it." The Wall Street Journal (3/21)
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Regulatory Roundup
Panelists debate exemptions for credit-value adjustment
At an industry conference in London, panelists discussed the consequences of proposed exemptions to a capital charge for credit-valuation adjustment in Basel III. The proposed exemptions for trades with sovereigns, corporates and pension funds are part of compromise text for Capital Requirements Directive IV. (subscription required) (3/21)
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CFTC amends NGX's registration as derivatives-clearing organization
The Natural Gas Exchange has gained permission from the Commodity Futures Trading Commission to clear an expanded list of products and continue use of an accrual accounting methodology for settlement. The CFTC has amended NGX's registration as a derivatives-clearing organization. Platts (3/21)
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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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People who are brutally honest get more satisfaction out of the brutality than out of the honesty."
-- Richard Needham,
Canadian humorist
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