A synopsis of the headlines in the derivatives industry from the last week.
Europe
Pension funds win reprieve
Pension funds heaved a sigh of relief after the European Commission extended their implementation deadline for derivatives under the European Market Infrastructure Regulation (EMIR) to 2017 to allow central counterparties (CCPs) more time to develop more solutions targeting their specific issues.
Many pension funds, especially in the UK, use inflation swaps and interest rate swaps for liability-driven investment strategies, which hedge their large exposures to rate movements.
The rules, which came into force three years ago, had granted European pension funds an exemption until 2015 due to the cost burden of the new regulations. The European Commission estimated that the new margin requirements would cost them between €2.3 bn and €2.9 bn a year.
Sources:
http://europa.eu/rapid/press-release_IP-15-3643_en.htm
US
Back to school
Commodity Futures Trading Commission (CFTC) J. Christopher Giancarlo wants to raise the bar and introduce exams for swap traders and brokers. The aim of the conduct standards initiative is to enhance the knowledge, professionalism and ethics of personnel in the US swaps markets.
In a white paper, Giancarlo argued these proposals, which could be implemented under existing CFTC authority, would bring business practices for some of the complex derivatives more closely in line with those in other markets, such as equities and futures.
The Commissioner has long contended the implementation of CFTC swaps-trading rules has been unsuitable because it is improperly modelled on futures markets and is not in accord with what Congress intended. Any revisions to the rules would have to come before the agency as a new rule proposal and must be voted on by commissioners after being issued for public comments.
Source:
www.wsj.com/articles/cftcs-giancarlo-proposes-swap-trader-exams-1422484421
Global
IOSCO publishes risk standards
The International Organisation of Securities Commissions published the final report Risk Mitigation Standards for Non-centrally Cleared OTC Derivatives, which sets out nine standards aimed at mitigating the risks in the non-centrally cleared OTC derivatives markets.
These standards, which were developed in consultation with the Basel Committee on Banking Supervision BCBS and the Committee on Payments and Market Infrastructure, aim to promote legal certainty over the terms of the transactions, foster effective management of counterparty credit risk and facilitate timely resolution of disputes.
Trading relationship documentation may help to reduce the legal and other risks that can result from undocumented non-centrally cleared OTC derivatives transactions or material terms of non-centrally cleared OTC derivatives transactions. Although, some form of trading relationship documentation has been used by the majority of derivatives market participants for many years, this will further strengthen the process.
Source:
http://www.iosco.org/news/pdf/IOSCONEWS361.pdf
Liquidnet gears up for bond launch
It is expected that Liquidnet will launch its long anticipated fixed income trading platform in the first half of the year. The buy side only dark pool operator, which acquired bond trading group Vega Chi last March, has spent the last few months running tests on the new system.
Liquidnet’s aim is to capitalise on the current liquidity squeeze in bond markets, triggered by new regulations that have made it more expensive for banks to act as market makers. This has resulted in the bulk of the bond inventory traditionally held by banks shifting to the buy side.
Liquidnet runs buy side-only trading platforms designed to enable asset managers to trade large blocks of shares without revealing their intentions to the market. It will not be alone in the bond space as a number of venues have thrown their hat into the ring. For example, Six Swiss Exchange recently unveiled its plans to debut a corporate bond trading platform by the end of the first half of this year.
Source:
