A synopsis of the headlines in the derivatives industry from the last week
Europe
ESMA launches two trade reporting initiatives
The European Securities and Markets Authority (ESMA) has launched two major projects to centralise trade reporting under MiFID II and the European Market Infrastructure Regulation (EMIR).
The first – the Instrument Reference Data Project—is expected to go live in early 2017 and aims to provide a central facility for instrument and trading data as well as the calculation of the MiFID II transparency and liquidity thresholds. It will collect data directly from about 300 trading venues across the European Union.
The second – Trade Repositories Project—which is slated for 2016 will provide a single access point to trade repositories data under EMIR. It will provide ESMA and 27 national competent authorities (NCAs) with immediate access, through a single platform, to the 300m weekly reports on derivatives contracts received from 5,000 different counterparties across the EU trade repositories.
Source: https://www.esma.europa.eu/news/ESMA-launches-centralised-data-projects-MiFIR-and-EMIR?t=326&o=home
UK
LCH.Clearnet expands offering
LCH.Clearnet, the global clearing house, is expanding its clearing offering to inflation swaps through SwapClear which will enable firms to offset their margin requirements with correlating interest rate derivatives cleared at LCH.Clearnet.
Trading in inflation-linked swaps is popular among asset managers and pension funds looking to guard against rises in inflation and interest rates.
Source: http://development.derivsource.com/articles/lchclearnet-launches-inflation-swaps-clearing
Global
BIS advises keeping an eye on central banks’ use of collateral
Central banks have significantly increased their influence over collateral flows, and regulators should consider policies to carefully monitor their activity, according to a recent report from the Bank of International Settlements – Central Bank Collateral Frameworks and Practices, written by a study group chaired by Guy Debelle, assistant governor of the Reserve Bank of Australia.
According to the report, there is a view that as monetary policies normalise and central banks start to shrink their footprint in financial markets, collateral markets will be impacted. It also notes that in both normal and crisis times, central bank operational frameworks and collateral policies influence asset markets, private sector collateral practices and private sector risk management.
Among its recommendations is that in order to prepare for any crisis response, some aspects of operational frameworks may need to be examined. This includes the adequacy of available inventories of collateral assets and of central banks’ risk management capabilities in stressed financial conditions.
Source: https://www.bis.org/publ/cgfs53.pdf
US
ISDA sounds warning over lack of harmonisation
The International Swaps and Derivatives Association (ISDA) published a set of derivatives trading principles aimed at promoting regulatory consistency and the standardisation of swap execution facilities (SEF).
The paper, Path Forward for Centralised Execution of Swaps, notes that the regional differences in implementation of rules is a major concern because it could lead to continued fragmentation in the market , prompting “difficult and intractable negotiations as to which rule set should prevail”.
The paper states that the trading liquidity of a derivatives contract should be determined by reference to specific objective criteria, based on “concrete, transparent and objective standards”.
Research conducted by ISDA shows an emergence of liquidity fragmentation since the introduction of US SEF rules in October 2013, as European dealers opt to trade euro interest rate swaps (IRS) with other European-based dealers over US counterparts. There was a 14% increase in the number of euro IRS transactions between European dealers from September 2013 to December 2014.
Source: http://development.derivsource.com/articles/isda-outlines-path-forward-centralized-execution-swaps
Asia
Australia sees boom in central clearing
The Australian Securities Exchange reported a surge in centrally cleared derivatives in the wake of OTC regulation. Volumes were not only boosted by increased demand for the products which are used for speculation and hedging against adverse interest rate moves, but also reflects uncertainty over future policy changes by the Reserve Bank of Australia, after a long period of stability.
Figures from ASX, one of the country’s largest exchanges, shows that that A$136bn ($104bn) worth of OTC interest rate derivatives was cleared in March, up from just A$6.2bn in the same period a year ago. The total notional value of cleared rates in the year to date reached a$445.4 bn compared with A$16.5bn a year ago.
The clearing business has grown rapidly from a very low base in Australia and the ASX has been challenged domestically by LCH.Clearnet, the European clearing house which set up operations in Sydney last year with support from a group of international banks.
While the UK-based clearer does not break down its number for Australia, its SwapClear operation dominates the clearing of all Australian dollar-denominated products. It has cleared swaps with a total notional value of more than $11tn, compared with ASX’s $570bn and A$2.3tn in all Australian dollar-denominated swaps year to date.
Source: http://www.ft.com/cms/s/0/4d234394-dd21-11e4-975c-00144feab7de.html#axzz3Wc9GR0x5
