A synopsis of the headlines in the derivatives industry from the last week.
FIA lobbies Basel Committee
The Futures Industry Association (FIA) has written to the Basel Committee on Banking Supervision urging it to reconsider the inclusion of segregated margin in its leverage ratio calculations.
The FIA is supported by its trade association peers, the World Federation of Exchanges and CCP12, as well as central clearing counterparties ICE, CME Group, LCH Clearnet Group, and Eurex Group. They contend that if the exposure-reducing effect of segregated margin isn’t included in leverage ratio calculations, the amount of capital required for central clearing will substantially increase.
The leverage ratio framework was designed to capture the total exposure a banking organisation has to its customers and counterparties. Accurately depicting this is critical to establishing appropriate capital requirements to mitigate risk. The signatories of the letter propose three potential routes for revising the leverage ratio – an interpretive FAQ, amending the text of the leverage ratio standard, and adopting a modified calculation methodology that recognises the benefit of collateral.
Source: http://www.futuresindustry.org/downloads/RELEASE%20Global%20Capital%20Letter.pdf
Credit default swap news
IOSCO outlines post-trade transparency plan
The International Organisation of Securities Commissions (IOSCO) is supporting new rules to make the price and volume of individual transactions in the credit default swaps (CDS) markets publicly available.
In its consultation report, Post-Trade Transparency in the Credit Default Swaps Market, IOSCO concludes that introducing worldwide mandates would not only promote greater efficient price discovery but also increase price competition. Other benefits include the improvement of valuations, enhanced risk management and increased liquidity.
Currently, only Canada, Europe and the US have applied post-trade rules such as reporting and central clearing for the CDS market. IOSCO is now seeking public input on its report by 15 February 2015.
Deutsche Bank sharply reduces CDS trading
Deutsche Bank is scaling back trading in most credit-default swaps tied to individual companies due to the more costly regime imposed by new Basel III banking regulations.
According to data from the Bank for International Settlements, the market has significantly shrunk to less than $11 trillion from $32 trillion before the collapse of Lehman in 2008. The instruments, which have been blamed for exacerbating the financial crisis, have become more expensive for lenders like Deutsche Bank as regulators across the US and Europe require banks to hold more capital to back trades, reducing the returns for shareholders.
The Frankfurt-based bank is not withdrawing completely from the CDS market but will instead focus on transactions in corporate bonds as well as swaps tied to emerging-market borrowers and distressed companies.
US and European news
US clearers may get some respite
The European Union is expected to extend a deadline to 15 June 2015 from 15 December 2014 by which US clearing houses need to comply with its rules. The delay would after months of negotiations failed to produce a breakthrough in how to reconcile swaps rules across international jurisdictions.
The U.S. Commodity Futures Trading Commission (CFTC) requires foreign-based clearing houses to meet US rules when they conduct business in the country and in return, Europe after the deadline will stick to its own rules for US clearing houses rather than exempting them as it has done for countries such as Japan, Hong Kong and Australia.
Source: www.reuters.com/article/2014/11/18/us-financial-regulations-swaps-exclusive-idUSKCN0J22IY20141118
