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February 5, 2013

Daily coverage for the global derivatives industry

Top Stories

European lawmakers reconsider proposed swaps rules
The European Parliament Economic and Monetary Affairs Committee has voted down draft rules for over-the-counter derivatives. The outcome, which was expected, hinged on lawmakers' concerns that the rules would create an undue burden on businesses and would run counter to EU law. The decision is expected to further delay a plan for mandatory clearing of more OTC derivatives. The full Parliament could take up the matter this week. If the measure fails there, too, policymakers will have to start over. Bloomberg Businessweek (2/4), Reuters (2/4), Financial Times (tiered subscription model) (2/4)

CDS payout process faces test with SNS Reaal nationalization
ISDA says it will rule on whether the nationalization of SNS Reaal constitutes a credit event. The situation is expected to test the process for determining payout on credit default swaps. International Financing Review (free content) (2/5)

Industry News and Trends

SGX reportedly joins LSE in LCH.Clearnet stake talks
Singapore Exchange has joined discussions started by London Stock Exchange Group to purchase a stake in LCH.Clearnet Group, sources say. SGX declined to comment on the subject. "As the Asian Gateway, SGX is open to partnerships and alliances for the benefit of shareholders, the company and our customers," spokeswoman Carolyn Lim wrote in an e-mail. "However, we do not comment on media reports or speculation." Bloomberg (2/4), Reuters (2/4), Financial Times (tiered subscription model) (2/5)

Commentary: Ring fencing is sensible but has limits
Former U.K. Chancellor Alistair Darling writes that ring-fencing banks' risky activity from retail business would be a sensible move, but more must be done. Financial Times (tiered subscription model) (2/4)

Expected demand in China sends iron-ore swaps soaring
Iron-ore swaps rallied amid speculation that demand by Chinese steel mills will increase ahead of Lunar New Year. China is the world's biggest importer of iron ore. Swaps contracts reached a 15-month high. Bloomberg (2/4)

Analysis: Futurization of swaps could continue awhile
The futurization of swaps could be a long-term trend, according to this analysis. Large exchanges are expected to benefit from the shift, while interdealer brokers and large dealer banks are expected to lose. The Economist (tiered subscription model)/Free Exchange blog (2/4)

Moscow Exchange is worth more than $4B, IPO arrangers say
The Moscow Exchange, Russia's main trading venue for stocks, bonds, derivatives and foreign exchange, has priced its initial public offering at a base of 55 rubles per share. The exchange aims to raise about $502 million. Google/Agence France-Presse (2/4), Bloomberg Businessweek (2/4), The New York Times (tiered subscription model)/DealBook blog (2/4), Financial Times (tiered subscription model) (2/4)

Regulatory Roundup

Osborne aims to give U.K. regulators power to break up banks
U.K. Chancellor George Osborne says the Financial Services (Banking Reform) Bill includes authority for regulators to break up banks. Financial institutions that fail to comply with ring-fencing rules would face the threat of being split up. "My message to the banks is clear: If a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether -- full separation, not just a ring fence," Osborne said. Bloomberg (2/4), The New York Times (tiered subscription model)/DealBook blog (2/4), The Wall Street Journal (2/4)

German ring fence could force changes at several banks
A proposed ring-fencing law in Germany, which goes to the Cabinet for approval Wednesday, could force as many as 12 banks to change operations, a source says. The law would force banks to make changes if more than a fifth of their business or more than €100 billion in income comes from risky activity. The legislation would take effect after implementation of capital rules by the Basel Committee on Banking Supervision. The Wall Street Journal/Dow Jones Newswires (2/4)

FSB brings confusion with stance on FX derivatives margin
The Basel Committee on Banking Supervision and the Committee on Payment and Settlement Systems need to focus on foreign exchange derivatives and "set out strong provisions on variation margin," the Financial Stability Board says. But the request seems to run counter to the Working Group on Margining Requirements, which has delayed issuing guidelines, partly because of questions about whether they would be appropriate for forex swaps. The working group is run by the Basel Committee and the International Organization of Securities Commissions. Risk.net (subscription required) (2/4)

Experts: European transaction tax could push business elsewhere
The Eurobond originated 50 years ago, when the U.S. instituted a tax to make it more expensive to invest in foreign equities. The Eurobond market became a viable alternative and has become the largest fixed-income market for corporate debt. Analysts see Europe's proposed financial-transaction tax as having the same effect. "If you can transact without transaction costs, you will," said Jim Kean of Bayesic Asset Management. "There'll be a market in Singapore or somewhere else." Bloomberg (2/3)

SmartQuote

Our business in life is not to succeed, but to continue to fail in good spirits."

--Robert Louis Stevenson,
Scottish novelist, poet and essayist

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