A synopsis of the headlines in the derivatives industry from the last week.
Europe
ICE joins forces with Eris
InterContinental Exchanges (ICE) plans to enter the European OTC swap fray next year by launching credit and interest rates futures through a licensing agreement with Eris Exchange.
ICE will be jostling for position with rival groups who are already have established a footprint or are poised to make a move. For example, in September, Eurex, the Deutsche Börse-owned derivatives exchange, became the first European venue to introduce a swap future, backed by a patent belonging to Goldman Sachs. The London Stock Exchange is also planning to debut a swap future in conjunction with some of the largest investment banks, including JP Morgan and Goldman Sachs, through an initiative called Project Rita. Meanwhile, European derivatives trading start-up Gmex, Nasdaq OMX’s NLX venue and CME Group are also considering launching similar products.
The Atlanta-based group will also use the license agreement to list US credit default swap (CDS) futures based on the Markit CDX North American Investment Grade and High Yield indices. These will be listed on ICE Futures US and cleared at ICE Clear US in the first half of next year, subject to regulatory approval.
http://www.ft.com/cms/s/0/06a2dc16-7bc6-11e4-b6ab-00144feabdc0.html?siteedition=uk#axzz3LDSfHY7k
Too big to fail
Central counterparties (CCPs) which are meant to reduce market risk have increasingly come under fire because of their size. While US and European regulators agree they should not be bailed out by the taxpayers, their different solutions do not always sit well with the clearing houses.
One of the most contentious issues is the size of contributions that CCPs should make to default funds. Market practitioners argue that more “skin in the game” from clearing houses would incentivise them to manage their risks. Under European rules, they are required to have an equivalent to 25% of their minimal capital resource while US rules are not as prescriptive.
Other proposals proving controversial are the Bank for International Settlements (BIS) and the International Organisation of Securities Commissions (IOSCO) policy guidelines that include tearing up derivatives contracts, applying a “haircut” to margins, allocating any uncovered losses to members and replenishing any funds that were expended during a stress event.
http://www.ft.com/cms/s/0/f18a42c8-7626-11e4-9761-00144feabdc0.html#axzz3LDSfHY7k
TriOptima and DTCC connect the data dots
TriOptima, the post-trade business owned by interdealer broker ICAP, and the Depository Trust and Clearing Corporation (DTCC) have gone live with a joint reconciliation service in attempt to resolve a continuing problem of trades being unmatched at Europe’s repositories.
The service enables clients to use TriOptima’s portfolio reconciliation service, triResolve, for over-the-counter (OTC) derivatives trades reported to the DTCC’s trade repository, as required under the European Market Infrastructure Regulation (EMIR).
The new connectivity allows market participants to compare and match DTCC trade records with their internal trade records. The ability to match trades between counterparties and identify any discrepancies in reports has become a priority for the market. This is because there has been a lack of guidance from Europe’s regulatory authority on the unique trade identifier (UTI), an alphanumeric code designed to enable repositories to pair trades.
People move
Litvack takes over ISDA helm
Eric Litvack, head of regulatory strategy at Societe Generale in Paris will replace Stephen O’Connor as chairman of the International Swaps & Derivatives Association on 1 January 2015.
Litvack has been ISDA’s vice chairman since 2012 and served on its board since 2006. O’Connor, who has been chairman at New York-based ISDA since April 2011, is leaving to pursue personal interests.
www.businessweek.com/news/2014-12-01/isda-says-socgen-s-litvack-to-replace-o-connor-as-chairman
