A synopsis of the headlines in the derivatives industry from the last week.
DTCC Proposes Central Clearing for Repo Market
The Depository Trust Clearing Corp (DTCC) is seeking regulatory approval to provide central clearing for government related securities to ensure stability in trading and transparency in the $1.6 trn a day tri-party repurchase (repo) agreement market.
The clearinghouse which intends to submit a rule filing with Securities Exchange Commission (SEC) and an Advance Notice filing to both the SEC and the Federal Reserve wants to reduce the risk of rapid asset sales of securities held by cash lenders upon the default of a dealer. This could escalate a market crisis by triggering a broad-based decline in asset prices. The Federal Reserve has identified this issue as the main remaining risk in this wholesale funding market that Wall Street’s biggest banks rely on for their day-to-day financing needs.
Other clearing news
Clearinghouses need a recovery plan –
A report by the Bank for International Settlements (BIS) and International Organisation of Securities Commissions (IOSCO), an umbrella organisation of the world’s securities regulators, said it was “essential” that systemically-important market infrastructure players such as clearinghouses should be given every chance to recover from any threat to its financial viability. It has called for them to be given a toolkit that could be allocated to any uncovered losses and cover liquidity shortfalls. BIS/IOSCO also called for clearinghouses to be allowed to replenish any funds it used after a “stress event”.
Source: http://www.ft.com/cms/s/0/0037ad8e-547f-11e4-b2ea-00144feab7de.html?siteedition=intl#axzz3G61zR2ZG
FX news
Buy-side making their presence known in FX e-trading, according to Greyspark report –
FX markets are witnessing an upsurge in buy-side to buy-side trading activity as banks increasingly provide tools to directly access the market, according to research from consultancy GreySpark Partners.
The new report found that there are now at least three Tier I banks that offer direct market access (DMA) services to their buy-side clients to electronically trade spot FX within leading inter-dealer venues. There are also many others that allow them direct connectivity access to inter-dealer spot FX platforms using bank ID codes to trade spot FX. The result is that while broker-dealer FX banks still largely control the level of liquidity present in an inter-dealer spot FX venue on any given day, they are allowing buy-side firms to dictate the level of churn or volatility that occurs within that liquidity.
Cross border developments
Massad sees ‘progress’ on global derivatives rules –
European regulators may still be lagging their US counterparts in establishing post financial crisis rules for the derivatives industry, but Timothy Massad, head of the Commodity Futures Trading Commission, believes progress is being made in forming a coordinated response. However, it will take time for countries to work through their differences.
Speaking at a hedge fund conference sponsored by the Managed Funds Association in New York, Massad who is four months into his tenure, said he shares concerns by banks and other market participants regarding a fragmented approach to regulation. However, he is “pleased” that the CFTC’s European counterparts postponed a mid-December deadline that would have forced European banks that choose to clear their trades in the US to significantly increase the amount of capital they hold to protect against a default—a move industry officials have long warned would be too expensive.
Source: http://www.efinancialnews.com/story/2014-10-17/massad-cftc-sees-progress-on-swaps-reforms
Headline grabbers across the globe
Record day for derivative exchanges –
As equity markets came crashing down last week – the biggest drop in three years – US derivatives exchanges hit the high notes. The CME Group’s daily volume reached 39.6m contracts traded – the single-highest total in its 166-year history – eclipsing the previous record of 26.9m set on May 29 2013 while rival IntercontinentalExchange (ICE) beat its previous single-day record in its US dollar index futures by nearly 2,000 contracts, with trading in 118,291 contracts. The reason for the bumper performance was investors exited trades and opted for the safe haven of highly rated government debt on the back of fears over spluttering global growth.
Source: http://www.ft.com/cms/s/0/4ff2da0c-5550-11e4-b750-00144feab7de.html?siteedition=uk#axzz3GJwU4se5
