A recap of the derivatives industry news in the last week
DTCC issues data harmonisation guidelines
The Depository Trust & Clearing Corp (DTCC) has issued a series of recommendations on global data harmonisation, beginning with credit derivatives, as part of its push to harmonise 30 data fields across global trade repository providers and create a global data dictionary.
The recommendations were sent to a working group consisting of the International Organisation of Securities Commissions (IOSCO) and the Committee on Payments and Market Infrastructures (CPMI), both of which are members of the Financial Stability Board, the body which seeks to harmonise financial regulation around the world.
The post-trade utility said the aim of the proposed global data dictionary is to bolster financial stability and systemic risk analysis and to “provide a path forward to promote more active dialogue between CPMI IOSCO and the industry in order to address the existing reporting challenges that have emerged due to the jurisdictional implementation of reporting rules.”
Citadel rises to the challenge
Chicago based hedge fund Citadel has broken through the ranks, emerging as a top non-bank dealer in US interest rate swaps.
The firm not only has the largest market share by number of trades but the third largest by dollar volume in the second quarter. As for the first three months, it was in third place by number of trades and the rung below by dollar volume. The platform covers nearly half of all customer trades in the derivatives, according to swaps data tracker Clarus Financial Technology.
Citadel Securities’ emergence as a big market maker in interest rate swaps may draw other non-bank firms into what is seen as a potentially lucrative but technically challenging business. The firm is already a heavyweight market maker in US stock and Treasury markets. It has 14% of all US daily stock volume, 20% of all US-listed stock options volume and is a top-five player in US Treasury futures on platforms operated by CME Group.
Moody’s proposes risk ratings for CCPs
As the debate rages on over central counterparties’ (CCP) security, Moody’s Investors Service has proposed a new global methodology that will allow clearing members and end-users to assess and compare the soundness of CCP risk management practices.
The new Clearing Counterparty Rating will look at a CCP’s ability to meet its clearing and settlement obligations to members and the financial loss that would result if it fails. It will be calculated using a bottom-up analysis of clearing services, taking into account the firms’ member default management capabilities, structural protections, financial fundamentals and the operating environment.
The rating agency has issued a request-for-comment that runs to August 21, with a number of key questions around its methodology for calculating areas such as counterparty as well as operational risk and the resilience of resources in the waterfall fund, a capital buffer designed to protect the CCP from failure in the event of a catastrophic default by one of its members.
T2S finally goes live
After eight years of planning, construction and several delays, the European Central Bank venture – Target2Securities (T2S) – finally saw the light of day this week. However, the launch did not go off without a hitch. Italian securities depository Monte Titoli, the only depository from a large country that was planning to join on its first day, said it wanted to delay entry to August 31 to allow more time for testing.
The hope is that T2S will emulate the US where fees are lower due to its centralised clearing and settlement infrastructure. Banks and brokers are expected to save millions from the harmonisation of the region’s expensive settlement system.
As witnessed by Monte Titoli’s actions, the road to completion has been long and bumpy. First conceived in 2007, the aim was to harmonise the cross-border payments for securities by creating a new link connecting settlement houses with the ECB. However, some criticised the complex and ambitious nature of T2S which cost €1bn, while others doubted the viability of an IT project largely undertaken in-house by a regulator.
T2S will effectively outsource large chunks of securities settlement from 23 of Europe’s central securities depositories (CSD) to the ECB. At a CSD, a transaction is confirmed as final and the security swapped for cash. That money can emanate from either other commercial banks or accounts held at a central bank.
ESMA delays CSD technical standards
The European Securities and Markets Authority (ESMA) has informed the European Commission that it is delaying the delivery of draft technical standards for the Central Securities Depository Regulation (CSDR), September from mid-June.
The letter was sent by ESMA chairman Steven Maijoor to Jonathan Faull, the EC’s director general of financial stability, financial services and capital markets union.
The regulator had previously said that standards for MFID II, the consultations for which opened at the same time as that for CSDR would be postponed until September. Together with the EC, it is submitting them to a legal review by the Commission’s legal service before release.