Buy-side firms are frustrated by SEC's 11th-hour margin change | Expert warns about "futurization" of swaps | Exiting swaps trades is difficult under rules, firm says
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March 13, 2013
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Bloomberg says it may sue CFTC over margin rules
Bloomberg says it will take the Commodity Futures Trading Commission to court if the agency sticks to its plan to force investors in credit-default and interest-rate swaps to post margins to cover a default for five days. Futures require only one-day coverage. Bloomberg maintains that the rule "threatens significant adverse effects for Bloomberg, other [swap-execution facilities], participants in the swaps and futures markets, and investors and taxpayers generally." Bloomberg (3/12), International Financing Review (free content) (3/13), Financial Times (tiered subscription model) (3/12), (subscription required) (3/12)
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Buy-side firms are frustrated by SEC's 11th-hour margin change
The Securities and Exchange Commission has introduced a stopgap margin alteration on certain credit default swaps that is forcing most buy-side market participants to put up more collateral than is required of central-counterparty members. Buy-side firms say the measure will interfere with liquidity. (subscription required) (3/12)
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Industry News and Trends
Expert warns about "futurization" of swaps
Siddhartha Roy, chief risk officer at the Clearing Corporation of India, is raising concerns about the margin requirements for futures, saying they may not accurately represent their risk. The issue is coming to a head amid the "futurization" of swaps, which carry higher collateral requirements. "The margin differential is an anomaly and it should gradually disappear as the issue is placed before the regulators. The two margins should converge at a mid-point to reflect the fact that the underlying risks of the two products are similar," Roy says. (subscription required) (3/12)
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Exiting swaps trades is difficult under rules, firm says
A migration to swaps-execution facilities, as mandated by the Dodd-Frank Act, has made ending trades in less actively traded swaps more difficult, as traders are no longer able to negotiate directly with dealers, according to AllianceBernstein. "A lot of real-money, buy-side trading practices have been ignored in this process," Senior Vice President James Wallin said. Bloomberg (3/12)
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Exchanges prepare for reform of CDS index trading
Market operators in the U.S. are getting ready for an overhaul of trading of credit default swaps indexes as the Commodity Trading Futures Commission works on rules governing swaps-execution facilities. The situation has prompted MarketAxess to request a temporary exemption from registration as a SEF. The Trade News (U.K.) (3/12)
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Banks reach settlement in CDS case
UBS and HSH Nordbank have settled in New York court a lawsuit dating back to a 2002 transaction. An appellate court previously ruled that UBS had not misled HSH into assuming default risk on part of a $3 billion credit default swaps trade. Reuters (3/12)
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Singapore Exchange announces tie-up, new products
Singapore Exchange announced several initiatives, including a tie-up with the Korea Exchange to explore joint trade processing and a plan to develop derivatives products with the Philippine Stock Exchange. SGX is looking for "new products, services and partnerships," SGX CEO Muthukrishnan Ramaswami said in a statement. SGX also announced that it plans to offer Asian foreign exchange futures in the third quarter. SmartBrief/SmartBlog on Finance (3/12), Bloomberg (3/12), Reuters (3/12), The Wall Street Journal/Dow Jones Newswires (3/12)
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Regulatory Roundup
Questions abound about Asian CCPs under EMIR
The European Commission says that under the European Market Infrastructure Regulation, third-country central counterparties that are recognized by national regulators can continue serving financial institutions in Europe through the end of a six-month transitional period, which ends in September. Then, the CCPs will need to apply for recognition from the European Securities and Markets Authority. Questions remain about which CCP services will be allowed to continue. (subscription required) (3/12)
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ICE discusses NYSE deal with European national regulators
IntercontinentalExchange CEO Jeffrey Sprecher says the company is concentrating on European national regulators in discussions to acquire NYSE Euronext and has yet to apply for EU approval. He is confident about the talks and says they should be "coming quickly to a conclusion." He also calls for more consolidation among European exchanges. Bloomberg (3/12), Financial Times (tiered subscription model) (3/13), The Wall Street Journal (3/12)
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Regulator will consider simplifying Basel III
Criticism that Basel III rules, which require banks to hold more capital against possible losses, are too complex is prompting the Basel Committee on Banking Supervision to re-examine the rules. "A vigorous public debate has developed recently as to whether the Basel regulatory framework strikes an appropriate balance among different desirable characteristics: simplicity, comparability and risk sensitivity," Chairman Stefan Ingves said. Reuters (3/12), Bloomberg (3/12), The Wall Street Journal/Dow Jones Newswires (3/12)
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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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Humor is just another defense against the universe."
-- Mel Brooks,
American actor and film director
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