A synopsis of the headlines in the derivatives industry from the last week.
Global
Swap users get nine month delay
The Basel Committee on Banking Supervision and the International Organisation of Securities Commissions have delayed the date for the introduction of minimum global rules on the collateral needed to back trades in the $691 trn market for swaps and other over-the-counter (OTC) derivatives. Banks will now have until September 2016 instead of a December 2015 start.
Under the original plan from 2013, the measures would have been phased in over a four-year period, beginning in December this year with the largest, most active and systemically important derivatives market participants. Swap users, which had hoped for a two-year delay, have been warning that a lack of certainly over precisely how countries would implement the rules meant they couldn’t complete their own technical work on schedule. The industry argued that it needed time to make the necessary wide-ranging changes to infrastructure, technology, risk management tools and documentation.
Regulators, though in the US, Europe and Japan – the three biggest OTC markets – have yet to finalise the rules.
Source: http://www.ft.com/cms/s/0/2f31cb0c-cd7d-11e4-a15a-00144feab7de.html?siteedition=uk#axzz3V8jJL8pA
Europe
Clearstream and ICE Clear Europe launch tri-party collateral management partnership
Clearstream and ICE Clear Europe have joined forces to launch a collaborative tri-party margin collateral management service.
The partnership will enable clearing members of ICE Clear Europe to use their assets held at Clearstream to manage their margin requirements. This should generate significant cost savings to banks as it allows greater flexibility for posting high grade collateral to meet central counterparty (CCP) margin requirements.
The venture marks the first step for ICE Clear Europe into the tri-party market. By connecting to Clearstream’s collateral management engine, the Global Liquidity Hub, securities can be pooled to make it available for meeting margin requirements, via the tri-party collateral management service.
Press release: http://development.derivsource.com/articles/clearstream-and-ice-clear-europe-launch-collaboration-triparty-margin-collateral-management
New report claims commodity traders do not pose a systemic threat
Commodity traders don’t pose systematic risks to the global financial system and shouldn’t be subjected to bank-style regulation, according to a new report – ‘Not Too Big To Fail,’ funded by Trafigura Beheer, the second largest metals trader and written by University of Houston finance professor Craig Pirrong. ( http://www.trafigura.com/media/2178/trafigura-pirrong-not-too-big-to-fail-systemic-risk-white-paper.pdf).
The paper argues against imposing capital requirements under MiFID II on commodity trading firms because they are not highly leveraged compared with banks, have strong capital structures and use syndicated lending to mitigate risk. It notes that stricter rules would not produce any material reduction in systemic risk, but would increase the costs of commodity trading to the detriment not just of trading firms, but of the producers and consumers.
Since the global financial crisis commodity traders including Trafigura, Vitol Group, Mercuria Energy Group and Gunvor Group as well as smaller firms have campaigned to differentiate their activities from banks.
Source: http://www.ft.com/cms/s/0/f7a67662-cf1e-11e4-9949-00144feab7de.html?siteedition=intl#axzz3V8jJL8pA
US
Nasdaq launches energy futures
Nasdaq OMX Group is launching a new energy futures market with support from major banks, clearing firms and market makers. The venture will put the exchange into direct competition against two of the country’s largest energy exchange operators, Intercontinental Exchange and CME Group.
The new market, which will include futures and options contracts for US natural gas, Brent crude oil, US power and other products, is slated to be launched by the end of the summer. The contracts are identical to existing CME and ICE contracts, except that they can’t be used to take physical delivery of the products. Founding members include ABN Amro, Advantage Futures, Goldman Sachs Group, JP Morgan Chase, Morgan Stanley and Virtu Financial.
Nasdaq is aiming to capture 10% of the energy futures market within two years, which would add around $50m a year to the company’s bottom line.
Press release: http://development.derivsource.com/articles/nasdaq-expands-global-commodities-initiative-energy-derivatives
Source: http://www.efinancialnews.com/story/2015-03-12/nasdaq-energy-futures-launch
CFTC eliminates residual interest rule
The Commodity Futures Trading Commission has eliminated a rule addressing how brokers post their own funds, known as residual interest. It was mooted in 2011 as part of the customer safeguards in reaction to the dramatic collapse of MF Global.
The residual interest deadline is the time at which Futures Commission Merchants (FCM) must inject their own resources to address any potential shortfall in their customers’ accounts. Currently, FCMs have a full business day to meet their obligations after they determine which accounts are under-margined. This was set to change automatically to the time of the daily settlement cycle by the end of 2018 without further public rulemaking and comment.
The concern was that if deadline was to be shortened, the resulting costs would drain liquidity from the futures markets and make it significantly more expensive for customers to hedge risk.
Sources: http://www.ft.com/cms/s/0/e9025c68-cd8c-11e4-8760-00144feab7de.html#axzz3V8jJL8pA
https://americas.fia.org/articles/fia-commends-cftc-revising-its-policy-residual-interest
