A synopsis of the headlines in the derivatives industry from the last week.
End users uncertain over new margin requirements
Banks and broker-dealers are uncertain whether they will be able to meet new collateral requirements for non-cleared derivatives, according to a new survey from the International Swaps and Derivatives Association (ISDA).
The survey canvassed 400 respondents with 24% working at non-financial corporates and 57% employed by financial institutions (insurers, finance companies, asset managers and bank end users). Forty-one per cent were with firms based in Europe while 47% were headquartered in North America.
ISDA has warned that rules for posting initial and variation margin would mean firms will have to make significant changes to their systems, processes and documentation, and many may not be able to do this before the December 2015 deadline. There is also confusion as to who the rules apply to with a third of participants unsure if they fall within the remit. For the 36% that know they are in the bracket, two thirds say they are either concerned or somewhat concerned about their ability to meet the requirements.
Other main issues flagged were increased costs of hedging (59%), regulatory uncertainty (38%) and concerns about the scope of cross-border derivatives regulation (36%). ISDA says the last of these appears to be having a tangible effect on end users as 53% of respondents thought derivatives markets were fragmenting along geographic lines as a result of new regulation. Over half claim this is having a negative or strong negative impact on their ability to manage risk.
Sources:
http://www2.isda.org/news/isda-insight-survey-end-users-uncertain-about-new-margin-requirements,
Europe
An uncooperative college of regulators
A European Securities and Markets Authority (ESMA) review of the “college of regulators” which oversees the authorisation of clearinghouses across Europe has found the system has been plagued by political infighting.
The report revealed that the college chairs which hail from the national competent authorities of the CCP’s largest clearers withheld information from other regulators while members sometimes abstained from voting on authorisation decisions.
According to the ESMA review, re-authorisation would have been “easier to achieve” in some instances if college chairs had responded to questions from other college members in a “more proactive and timelier” fashion. In cases where they were less willing to share information, there was evidence of other college members “abstaining from casting their vote on, or voting against the adoption of the college opinion.”
Sources:
www.efinancialnews.com/story/2015-01-09/emir-clearing-college-system-comes-under-fire-from-esma
Across the globe
Turkey to trade derivatives on LSE
Futures and options based on Turkey’s blue-chip BIST 30 index will be traded via the London Stock Exchange (LSE) Group and cleared by LCH.Clearnet, the LSE’s clearing house as part of the country’s overhaul of its capital markets and ambition to become a regional financial hub.
The agreement which is the fruition of several months of negotiations between the LSE and its counterpart Borsa İstanbul will also include the launch of an index partnership later in the year.
An agreement is the latest step in the country’s long ranging plans to become a regional financial hub and attract more international investors. The government has already created a single exchange, combining the Istanbul Stock Exchange, the Istanbul Gold Exchange and the Derivatives Exchange of Turkey and upgraded its technology with systems provided by Nasdaq, the U.S. exchange operator. It also aims to sell the majority of its 49% Borsa İstanbul this year via an initial public offering of the exchange.
Sources:
http://www.ft.com/cms/s/0/394152b8-9b17-11e4-b651-00144feabdc0.html?siteedition=uk#axzz3OhvaYxVM
Shanghai Stock Exchange tests the options waters
As flagged, the Shanghai Stock Exchange will be launching an option based on the Shanghai 50 exchange traded funds index before expanding to individual blue-chip stocks. The move is the latest in a series of steps by regulators to develop the country’s nascent derivatives market.
The China Securities Regulatory Commission (CSRC) initiated a one-month consultation on the draft rules governing the trading of stock options last December. Stock options will give equity investors new tools to hedge positions or express a bearish view in a market where short selling is still highly restricted.
Other products in the pipeline are new financial and commodity derivative with the China Financial Futures Exchange issuing draft rules for trading of 10-year government bond futures. This is in addition to contracts based on five-year bonds which currently are the only products traded. Beijing re-launched government bond futures in September 2013 after an 18-year ban sparked by a futures trading scandal in 1995.
http://www.ft.com/cms/s/0/2d5cdce8-97bf-11e4-b4be-00144feabdc0.html#axzz3OhvaYxVM
