A synopsis of the headlines in the derivatives industry from the last week.
UK
FCA clarifies reporting guidance under MIFID
The UK’s Financial Conduct Authority (FCA) published a new Transaction Reporting User Pack (TRUP) to clarify transaction reporting obligations under MiFiD.
The TRUP provides guidance on a firm hitting its own order on a trading venue as well as how the unit price should be reported for different instruments. In addition, it states that details for transactions have to be sent to the FCA on a T+1 basis.
There are exceptions to the rules… For example, the FCA does not require firms to transaction report Over-the-Counter (OTC) derivatives on the FTSE 100 index when the value is dependent on multiple equity or multiple debt-related financial instruments. Transactions in commodity, interest rate and foreign-exchange OTC/listed derivatives are also excluded although securitised instruments that track commodities, interest rates and foreign exchange are included.
Version three of the TRUP was published in March 2012 following a consultation of the entire text. The reports and the system are used to monitor potential market abuse and manipulation, improve market supervision and exchange information with other European Economic Area (EEA) authorities.
Source:
US
Feinstein pushes back
Democratic senator Dianne Feinstein of California is hoping to reinstate the hotly contested “push out” provision after US lawmakers voted in late 2014 to loosen the reigns for Wall Street banks.
The rule, which is part of Dodd-Frank, required banks to conduct risky derivatives trading in units separate from their deposit-taking activities. However, policymakers invalidated the requirement before it even hit the statute books late last year by including a clause in an unrelated government spending package that exempted most swaps activity from needing to be separated.
The rule was intended to isolate risky trading activity from the more traditional bank activities that have government guarantees, such as deposit insurance. Wall Street banks argued the rule would be expensive to follow because the trading units would need their own capital.
Source:
http://www.reuters.com/article/2015/02/06/usa-congress-swaps-idUSL1N0VG26G20150206
On probation
Intercontinental Exchange (ICE), owner of the New York Stock Exchange is giving the Big Board two years to prove its mettle. While it is expected to be a major contributor in the future, the latest crop of results has been disappointing.
ICE reported a healthy hike in revenues of $3bn in 2014 from $1.6bn in 2013 which were boosted by a full year’s ownership of NYSE and the London-based Liffe derivatives exchange, purchased together in late 2013. However, NYSE contributed a fraction of trading revenues at $188m, a 6% increase from the previous although listings revenue fared better a rise of 9% to $367m due to top offerings such as Alibaba of China.
ICE is the world’s second largest by market capitalisation and has expanded beyond its energy futures roots with the NYSE acquisition. It has also recently pushed into clearing of OTC derivatives as new rules overhaul the market.
Source:
http://www.ft.com/cms/s/0/457d681e-ad4b-11e4-bfcf-00144feab7de.html?siteedition=uk#axzz3RQs9Ul00
Global
Basel/IOSCO recommend a cautious approach
The Basel/IOSCO Joint Forum has published a report on developments in credit risk management across sectors. Among its recommendations are that supervisors should be cautious against overreliance on internal models and where appropriate could use simple measures in conjunction with sophisticated modelling to provide a more complete picture.
In addition it advises supervisors to be aware of the growing demand for high-quality liquid collateral to meet margin requirements for (OTC) derivatives sectors and be able to respond appropriately.
The report also suggests Joint Forum’s parent committees should also consider taking appropriate steps to monitor and evaluate the availability of such collateral in their future work, while also considering reducing systemic risk and promoting central clearing through collateralisation of counterparty credit risk exposures that stems from non-centrally cleared OTC derivatives. Last but not least, they need to evaluate whether firms are accurately capturing central counterparty exposures as part of their credit risk management.
The report surveyed supervisors and firms in the banking, securities and insurance sectors globally in order to understand the current state of credit risk management, given the significant market and regulatory changes since the financial crisis.
Source:
Press release: http://www.bis.org/press/p150205.htm
