A recap of the derivatives industry news in the last week
Europe
The clock is ticking
Greece missed a €1.5bn payment to the International Monetary Fund (IMF) that had been set for midnight on Tuesday, becoming the first advanced economy to miss a payment to the fund.
Time is running out although eurozone finance ministers are meeting this week to see if they can hammer out a deal with the government before the referendum on Sunday. A recent poll showed a majority of Greeks would vote No on the terms of a previous bailout deal demanded by foreign lenders, although the lead has narrowed significantly after banks were closed this week.
IMF managing director Christine Lagarde in June said Greece would be in default as of 1 July if it failed to pay the money, though an IMF spokesman last week said a missed payment would classify Greece as “in arrears”.
The missed payment would bring Greece closer to an exit from the euro zone currency if it prompted the European Central Bank to cut off emergency funding that Greek banks rely on. However, the ECB is expected to maintain that lifeline at least for this week and analysts say Greece could default and remain in the euro.
Sources: http://next.ft.com/85bc7ab2-1f08-11e5-ab0f-6bb9974f25d0
www.reuters.com/article/2015/06/29/eurozone-greece-idUKL5N0ZF49220150629
Liquidity shortage hits Danish repos
As turnover in Denmark’s repo market shrinks, the fallout is spilling over to Europe’s biggest supply of covered mortgage bonds. The $450 bn market is three times the size of the government-bond market, and provides as much as 70% of the liquidity buffers that Danish banks must hold to guard against capital markets freezing.
Data from the Danish central bank shows that the use of repos which oils the wheels in the secondary covered bond market is under threat. Turnover in the country’s repo market fell to two-thirds of its normal level at the end of last year, which is the first time since the global financial crisis hit in 2007 that repo transactions have been so thin.
Repos, short for repurchase agreements, are typically given against highly rated collateral to generate funds for short-term loans and cover temporary liquidity gaps.
US
CFTC closes loophole
The Commodity Futures Trading Commission (CFTC) is proposing a rule for safety margins for uncleared swaps in order to close a loophole Wall Street banks have used to evade new trading provisions under Dodd Frank by shifting business abroad.
The new rule, which will be finalised after a consultation period, only applies to cash, or margin, that buyers and sellers need to set aside for swaps that aren’t guaranteed by clearing house.
The majority of the CFTC’s stricter regime does not apply to foreign units of US firms as long as they do not have a financial guarantee from the parent company. As a result, some firms removed the guarantees from the foreign units in order to escape the rules for swap. Now they will have to comply.
Sources: http://www.reuters.com/article/2015/06/29/cftc-swaps-crossborder-idUSL2N0ZF1N320150629
Citi outshines JP Morgan
Citigroup has usurped JPMorgan’s position as the largest derivatives dealer in the US, according to data compiled by the Office of the Comptroller of the Currency. (OCC).
Citi’s derivative contracts as measured on a notional basis were $56.6 trn at the end of the first quarter compared to JPMorgan’s$56.2 trn and Goldman Sachs’$52 trn. The bank has been expanding its derivatives business as it rebuilds its trading operations. It has amassed the largest stockpile of interest-rate swaps.
Citigroup has said it has pursued a risk-managed expansion off of a low base to bring the firm in line with competitors.
Asia
MAS gives ICE brokers green light
The Monetary Authority of Singapore has given the green light for Intercontinental Exchange to welcome the first three members – KGI Ong Capital, Phillip Futures and UOB Bullion and Futures – to its new ICE Clear Singapore service.
The development is a sign that local banks in Singapore are confident that there will be sufficient client demand for the products that ICE will offer when its new futures exchange and clearing house goes live. It was due to begin operations in March, but this has been delayed until later in the year following a legal challenge from a Chinese exchange over the design of some of its futures contracts.
http://next.ft.com/4b9b9f1c-1b0b-11e5-a130-2e7db721f996
