A recap of the derivatives industry news in the last week
LCH.Clearnet extends client clearing
LCH.Clearnet’s ForexClear has extended its client clearing offering to include European model account structures. End-users trading non deliverable forwards (NDFs) are now able to connect to four clearing brokers offering the service, including HSBC, Société Générale and Standard Chartered Bank.
The initiative enhances ForexClear’s existing US client clearing model with its legally separated operationally commingled (LSOC) account structure, which was launched in 2013. In Europe, it will include individually segregated accounts (ISAs) and gross omnibus segregated accounts (OSAs).
Although regulators dealt a blow to the CCP earlier this year by announcing that NDFs would not be subject to mandatory clearing, the group still believes that the buy side will opt to clear FX trades. This is because of the benefits derived from improved counterparty risk management, increased capital efficiency through services such as multilateral netting, as well as simplified initial margin and variation margin exchange.
ESMA puts UCITS rules under the microscope
The European Securities and Markets Agency (ESMA) has called for a review of the UCITS Directive to account for the central clearing of derivatives required under the European Market Infrastructure Regulation (EMIR).
ESMA stated that given the impact of EMIR, the UCITS directive should be amended to apply the same rules to derivatives that are centrally cleared or exchanged traded . Currently, the directive allows investments in both exchange trade and over-the-counter (OTC) but only the latter are subject to counterparty risk-exposure limits.
The watchdog said counterparty risk limits should change to match the differing arrangements, and, under individual segregation, the UCITS regime should not apply risk limits but continue to do so under omnibus client segregation.
European Commission to deliver update
The European Commission launched its review of the European Market Infrastructure Regulation (EMIR) in order to provide a progress report to the European Parliament and Council. It will look for input from the European System of Central Banks (ESCB), the European Securities Markets Authority (ESMA) and the European Systemic Risk Board (ESRB).
A public consultation will run until 13 August 2015 and a public hearing will take place on 29 May 2015 in Brussels. Topics to be covered include central counterparties (CCPs) access to central bank liquidity facilities, the functioning of their supervisory colleges and their margin practices. In addition, it will evaluate the systemic importance of non-financial firms.
Source: http://europa.eu/rapid/press-release_IP-15-5014_en.htm
Global regulators to fix rules after rigging scandals
Global regulators are to gather in London next month at the Financial Conduct Authority’s (FCA) annual meeting International Organisation of Securities Commissions (IOSCO), an umbrella body for regulators such as BaFin in Germany and the US Securities and Exchange Commission (SEC). Top of the agenda is tightening their collective grip on markets after banks were fined billions of dollars for manipulating interest rates and currencies.
The hefty penalties on British, American and Swiss banks have forced authorities to rethink regulation for a chunk of the market which in the past has been self-regulating. Britain and the European Union have made rigging benchmarks including Libor a criminal offence but the UK regulator is also calling for standards to navigate the nuances of the markets.
Britain’s Fair and Effective Markets Review (FEMR) will publish its findings on June 10 to improve conduct standards in currency, commodity and fixed income markets to make misconduct more difficult. These recommendations could become a template for global action. Critics are calling for a tougher line and not just a simple updating of the voluntary codes of conduct. The jury is out though as whether regulators will have an appetite for significant reform after seven years of stringent legislation.
Source: http://www.reuters.com/article/2015/05/22/us-britain-markets-regulator-idUSKBN0O71F320150522
