A synopsis of the headlines in the derivatives industry from the last week.
North America
US futures volumes rise
US futures exchange volumes increased sharply in the fourth quarter of 2014, culminating in a 3.7% hike in end-of-year volume to 3.2 bn contracts over 2013, according to a Tabb Group’s Futures Market Review: Fourth Quarter 2014. Although short of the 20 plus growth rates in US futures seen in the halcyon 2001 to 2008 period, last year’s growth rate was more promising than 2009 or 2012, when volumes reported were down 18% and 12%, respectively.
Interest rate futures, which were up more than 16%, were the main drivers of the increases as uncertainty over Federal Reserve policy triggered volatile moves and record volumes on major US derivatives exchanges, according to the report.
The report also noted that the Commodity Futures Trading Commission reporting Futures Commission Merchants (FCMs) continue to decline – 15 firms dropped out as of November – while market share remained concentrated as revenue opportunities continue to receive mixed signals.
At the granular level, Newedge, Deutsche Bank, UBS and Citi have lost around 1% in market share while Merrill Lynch, Morgan Stanley and Credit Suisse gained.
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CSA follows US lead
The Canadian Securities Administrators (CSA) is set to take a leaf out of the US regulators page by recommending its own version of Swap Execution Facilities (SEFs) – Derivative Trading Venues (DTFs).
Under the proposals published in its consultation paper, all DTFs will be authorised by the CSA and regulated similarly to an exchange. They will also have to comply with rules governing the conduct of participants and systems to monitor participants’ behaviour.
In addition, the paper also suggests that OTC derivatives that meet certain criteria will be forced to trade exclusively on these regulated facilities. However, the regulator stated that there will be no final determination on which asset classes will be included until after consultations with other authorities and the public.
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UK
Higher clearing fees could hit buy side
As bank’s profitability comes under the strain of regulation, clearing fee structures for the buy side are estimated to increase this year to generate a 14% to 15% return on capital from the current 1% to 2%, according to a White Paper from Catalyst.
Last year saw major banks such as RBS, BNY Mellon and State Street withdraw from the clearing space in Europe. However, this has left the remaining sell side players in a better position to negotiate higher fees with hedge fund managers.
According to the paper – OTC IRS Portfolio Optimisation: how trade compression could save you millions before the 2016 European Clearing Mandate strikes – “today, futures clearing merchants/clearing broker cost of capital is over 12%, with brokers targeting a return on capital of 14-15%. Average to large hedge fund fees will need to increase eight to tenfold for clearing brokers to make a profit on capital.”
It added that any hedge fund that uses less of their bank’s capital will bear less cost, enabling more efficient access to trading and liquidity.
Catalyst argues that they can circumvent these higher costs by buying into ‘trade compression’ services, which effectively ‘tears up’ contracts with notional values amounting to trillions of dollars by combining other trades with compatible characteristics, thus using less of the bank’s balance sheet.
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Asia
MAS tightens the screws
The Monetary Authority of Singapore (MAS) issued a consultation paper proposing tougher rules on financial activity such as short selling, derivatives and market misconduct.
Under the amendments, the MAS is hoping to increase transparency by requiring investors to report their short positions which the regulator in turn would publish aggregated figures. This new rule is expected to take effect in the middle of next year in order to give the financial industry time to prepare.
Source:
http://business.asiaone.com/news/mas-plans-boost-market-oversight#sthash.PpFs7coO.dpuf
ASIC publishes derivatives transaction rules
The Australian Securities and Investments Commission (ASIC) has amended the Derivative Transaction Rules and corresponding derivative transaction rules on the back of industry consultation and accompanying feedback on a consultation paper.
The alterations include introducing end-of-day or ‘snapshot’ reporting instead of intraday or ‘lifecycle’ reporting as a permanent reporting option as well as a ‘safe harbour’ from liability for reporting entities using delegated reporting, if certain conditions are met. It also covers expanding the ability for foreign firms to rely on foreign reporting requirements in order to comply with their obligations under the derivative transaction rules, known as alternative reporting. In addition, foreign entities, which use alternative reporting to designate (or ‘tag’) transactions, will need to report them.
Source:
http://forexmagnates.com/asic-implements-alterations-otc-derivatives-reporting/#sthash.yyKobhbf.dpuf
