A synopsis of the headlines in the derivatives industry from the last week.
Basel Committee looks to smooth the way
Although there is no single answer at present, regulators on the Basel Committee will be spending the next year looking at ways to crack down on the wide variations employed by big banks to calculate the size of their buffers.
The Committee said it will be consulting on different measures including stricter supervision of computer models that large banks use to apportion risk weightings to the different assets they hold to determine capital holdings. There will also be guidance on how supervisors should vet models as well as tighter definitions of defaulting loans.
Medium-sized and smaller lenders will not escape scrutiny. The Committee will be reviewing the so-called standardised approach this group uses to assess risks on their books.
Source: http://www.reuters.com/article/2014/11/12/basel-banks-idUSL6N0T23FL20141112
Aite and DTCC study outlines data concerns
A new survey by Aite Group which was commissioned by The Depository Trust & Clearing Corporation (DTCC) shows that increased regulatory requirements and related penalties, along with immature and fragmented data management processes are top of the list of concerns for financial firms involved in managing client and legal entity data.
The study which canvassed 16 financial institutions, including Tier-1 and Tier-2 buy and sell-side firms in North America and Europe, showed that 80% believed global over-the-counter (OTC) derivatives regulation and the Foreign Account Tax Compliance Act (FATCA) posed the greatest operational challenges for entity data management processes. This was due to the numerous checks and classifications that need to be applied. In addition, 69% indicated that data quality and the need for defined governance processes for entity data management were the most important when meeting investor transparency and regulatory reporting obligations.
Moreover, 56% said they plan to establish a single client masterfile as a means of staying ahead of the next wave of regulations while over 88% are considering a utility model to simplify and standardise the client on-boarding and lifecycle management process.
Source: http://www.dtcc.com/news/2014/november/11/aite-study.aspx
Across the pond
CBOE launches new contracts
The Chicago Board Options Exchange introduced a bond variation of its Vix equity index product designed to protect investors from increased volatility. There are growing concerns that the market will become bumpier as the Federal Reserve withdraws from its quantitative easing programme.
Investors will now be able to trade futures on the CBOE’s 10-year US Treasury note volatility index, known by the ticker symbol VXTYN. It is calculated on the same principle as the Vix index which is the bellwether of expected market volatility.
Sources: http://www.ft.com/cms/s/0/6d5f04a8-6b17-11e4-ae52-00144feabdc0.html#axzz3J0okDdls
CFTC to Look into Disclosure of Identities of Swap Counterparties
The famous Shakespeare refrain – what’s in a name – has taken on a new meaning in the trading world. Timothy Massad, chairman of the Commodity Futures Trading Commission (CFTC), told an industry conference the agency would look into the practice known as “name give-up,” in which traders’ identities are disclosed during post-trade processing, when they were intended to remain anonymous.
Many market participants seek anonymity in order to keep their trading strategies and business preferences under wraps from competitors. Dodd-Frank doesn’t directly address this issue but the CFTC is believed to be examining why transactions that start with anonymous negotiations do not remain secret. This move has also demonstrated that the CFTC has made great strides in implementing other derivatives rules and is now able to turn its attention to more arcane workings of the nearly $700 trn swaps market.
Asia news
FIX publishes guide for Shanghai-Hong Kong Connect
The FIX Trading Community has published an implementation guide for the Shanghai-Hong Kong Stock Connect service which sets out a number of suggested FIX tags and their usages in order to provide a basis for messaging standardisation and education.
The guide was developed in conjunction with the Asia Securities Industry and Financial Markets Association (ASIFMA) following a series of working groups with sell-side, buy-side, vendors and other market participants.
