A recap of the derivatives industry news in the last weekUS
BATS and Thomson Reuters update FX trading rules
BATS and Thomson Reuters both plan to limit the controversial practice, known as “last look,” on their platforms in order to increase transparency in the FX market. They plan to tighten the timeframe for cancelling quotes and introduce a minimum acceptance rate banks have to respect.
Although some FX platforms already do not permit last look, it is still allowed on some large venues, including Hotspot, owned by BATS; and FXall, operated by Thomson Reuters. Together, they account for about 25% of clients’ electronic forex trading, according to financial-industry consultants Greenwich Associates.
The last look practice is a legacy of over-the-phone currency trading, when traders would take a final check of the market before executing an order. It has survived even as FX trading has migrated onto electronic platforms, leaving banks with the option to back out of an order after it was accepted by a client.
Sources: http://www.efinancialnews.com/story/2015-05-28/thomson-reuters-and-bats-curb-last-look-in-fx-markets
Europe
Clearing timetable being honed
Now that the differences between the European Commission and the European Securities and Markets Authority (ESMA) over clearing obligations has been resolved, the first clearing rule for interest rate products is expected to take place by April 2016.
The announcement was made by Lord Hill, the European Commissioner for financial services, who was speaking at a public hearing held in Brussels to review the impact of the European Market Infrastructure Regulation (EMIR).
Uncertainty over the clearing rules combined with the cost has plagued Europe’s derivatives industry and has been one of the drivers behind some financial firms pulling out of the European OTC client clearing business. Moreover, the ongoing delays prompted Atlanta-based exchange operator Intercontinental Exchange Group (ICE) to extend the opening hours of its US clearing house earlier this year to accommodate European buy-side firms.
According to Hill, these first rules would “set the blueprint” for other derivative classes that will be subject to clearing obligations. He also confirmed that an extended two year relief period will be provided to Europe’s pension funds from the clearing mandate.
Sources:
http://www.efinancialnews.com/story/2015-05-29/europe-to-begin-derivatives-clearing-from-spring-2016
Europe and US
The same hearing in Brussels saw Steven Maijoor, chairman of European Securities and Markets Authority (ESMA), call for the European Union to be less rigid in its approach to dealing with financial rules from outside the bloc to avoid disputes with other countries.
According to Maijoor, part of the solution would be to have more detailed rules agreed at the global level in future to avoid future differences emerging.
The European Commission and US Commodity Futures Trading Commission (CFTC) have been at loggerheads for months over whether to recognise each other’s derivatives rules. They have each developed their own frameworks and if these are deemed “equivalent” then European banks can continue using US clearing houses to support their derivatives trading without incurring punitive capital charges. The bulk of the world’s $630 trillion derivatives market is traded in London and New York.
However, the Commission has repeatedly delayed a decision on whether U.S. rules are “equivalent” or as strict as EU rules.
Source: http://www.reuters.com/article/2015/05/29/eu-derivatives-regulations-idUSL5N0YK24720150529
Asia
China and Germany exchanges create new venture
The China Financial Futures Exchange, the Shanghai Stock Exchange and Deutsche Boerse have formed a Europe-based joint venture – China Europe International Exchange – to trade yuan-denominated products starting in the fourth quarter.
Deutsche Boerse and the Shanghai Stock Exchange will each have a 40% stake with the rest held by the China Financial Futures Exchange. Under the agreement, asset managers can buy licenses for launching exchange-traded funds (ETFs) that are based on Chinese key indexes and denominated in yuan, but designed according to German and European rules. The funds can be traded on European exchanges.
In February, Deutsche Boerse announced plans to forge ties with the Shanghai Stock Exchange. The SSE became official distributor and licensor of Deutsche Boerse market data in mainland China in April 2014.
Sources:
http://tabbforum.com/channels/equities/news/deutsche-boerse-seals-jv-with-chinese-exchanges
Global
Innovate or die
Big data could be advantageous to the asset management industry if it embraces innovation sooner rather than later, according to a newly minted white paper from BNY Mellon. Bringing dark pools of data together with predictive analysis and behavioural finance will not only help the sector find ways to enhance product design but also drive sales and improve prospective outcomes for investors.
According to the paper – Big Data and Investment Management – in an environment of shrinking margins and more powerful data analysis tools, asset managers have the opportunity to be creative and use the data to design, manufacture and market solutions more effectively with a view to generating outcomes that are more aligned with investor expectations.
Source:
http://www.bnymellon.com/us/en/our-thinking/business-insights/big-data-and-investment-management.jsp
