A synopsis of the headlines in the derivatives industry from the last week.
ISDA calls for tighter restrictions on CCPs
The International Swaps and Derivatives Association (ISDA) has recently published a paper, Principles for CCP Recovery paper that calls on clearinghouses such as CME Group and LCH.Clearnet to boost their resilience and transparency.
The trade group is requesting that the US-based Commodity Futures Trading Commission (CFTC) and other financial regulators impose mandatory and standardised stress tests on central counterparties (CCPs). They will not only be asked to disclose more information about their respective risks but also to set aside additional cash reserves to bolster existing default funds.
The aim is to ensure that the CCPs can better withstand a crisis, including the turbulence that would be caused if one of its member firms such as a bank, defaults.
News from Asia
SGX poised to launch new bond trading platform
The Singapore Exchange (SGX) is set to launch a bond trading platform by mid-2015 via a newly created subsidiary – SXG Bond Trading. Its game plan is to become an Asian liquidity hub for both high yield and investment grade corporate bonds. Initially it will cover Asian corporate bonds in G3 currencies, with Asian local currencies to follow.
SGX is working with the industry to fine tune the platform. It recently held an inaugural steering committee meeting with senior representatives of 32 leading Asian fixed income dealers and investors. The Committee will meet regularly and provide strategic direction as well as feedback.
SEBI tightens ODI rules
The Securities and Exchange Board of India (SEBI) is revising the rules for offshore derivative instruments (ODIs) to bring them in line with new foreign investment norms approved earlier this year. These include overseas investors ensuring their central bank is a member of the Bank for International Settlements.
ODIs are investment products issued by foreign institutions to unregistered overseas investors that provide exposure to Indian markets through derivatives. They are popular due to their reduced registration requirements.
Source: http://www.reuters.com/article/2014/11/24/india-regulator-investment-idINKCN0J811C20141124
UK news
Project Neptune reaches milestone
The 26 institutions backing Project Neptune have agreed to use FIX protocol to transmit information between broker dealers and asset managers. The network which includes leading buy and sell-side firms is an attempt to boost falling liquidity in bond markets which have been hit by tougher regulation and greater electronic trading.
Dealers’ bond inventories have dropped 70% since before the financial crisis but the stock of fixed-income assets outstanding has doubled as companies and governments have taken advantage of the prolonged low interest rate environment to sell debt.
Some critics of the project argue that it is aimed at enabling banks to retain their lock on the lucrative bond trading business while others contend the project is being pushed by Goldman Sachs, which recently spearheaded a similar industry-wide initiative to create a new messaging platform- Symphony – to rival the chat function found on Bloomberg’s terminals.
Source: http://www.ft.com/cms/s/0/70449d48-7172-11e4-b178-00144feabdc0.html#axzz3KarPZPeK
Cross border
Global regulators try to smooth the regulatory path
Although global regulators would like to see greater harmonisation of rules, they would not advocate establishing a body to settle disputes like the International Organisation of Securities Commissions (IOSCO), according to a study conducted by the association.
Based on the survey responses, there was little support for the trade group to coordinate the timing among jurisdictions’ implementation of cross-border regulatory tools or to facilitate the settlement of disputes arising from the assessment of foreign regulatory regimes.
Instead, IOSCO, whose members include the U.S. Securities and Exchange Commission (SEC), Germany’s Bafin and the UK’s Financial Conduct Authority (FCA) recommended three “tools” and common terminology as a basis for dealing with the cross-border impact of rules. The study based on a survey of regulators and banks was a first attempt at a broad framework for dealing with differing approaches to cross-border regulation.
Source: http://www.reuters.com/article/2014/11/25/markets-regulations-idUSL6N0TF2ST20141125
