A synopsis of the headlines in the derivatives industry from the last week.
UK
FCA shines its light on investment and corporate banks
The UK’s Financial Conduct Authority (FCA) plans to launch its first wholesale market study into investment and corporate banking, a £10bn a year market, in order to assess whether competition in the sector is working properly.
This follows the publication of its review into competition in the wholesale sector, which found that limited clarity over price and quality of services may make it difficult for clients to determine whether they are getting value for money. The regulator also found bundling and cross-selling of services could prove problematic for new entrants or smaller established firms to challenge established large players in the market.
The FCA canvassed around 70 organisations and individuals for the wholesale review, through round-tables and one-to-one meetings, as well as receiving 40 written responses. It provided feedback on other potential competition issues that might be investigated in the future. These included the vertical integration of clearing and execution services as well as the impact of reducing the number of clearing members and a lack of client clearing on over-the-counter (OTC)derivative markets.
Source:
http://www.ft.com/cms/s/0/29e6750e-b85a-11e4-a2fb-00144feab7de.html#axzz3SYcAZZsX
Europe
Spanish CCP to clear interest rate swaps
BME Clearing has applied to European regulators to launch a new OTC interest rate swaps clearing service in the third quarter of this year. The Spanish based central counterparty plans to build on its existing derivatives clearing capabilities, which includes equity, index, dividend and rates futures and options.
BME Clearing OTC IRS will cover all euro contracts subject to mandatory clearing by European Union regulations. The market exceeds €550 trn in annual gross notional outstanding. The aim is to offer customers the ability to benefit from capital efficiencies through clearing OTC and exchange-traded derivatives.
Source:
US
The Securities and Exchange Commission (SEC) has reopened its so called possessed rule governing the use of collateral held by swap dealers. The proposal would effectively ban re-hypothecation which is the use of the collateral by dealers as a source of funding.
In general, the rule requires that margin collected by swap dealers be held in an account that they control. However, under the SEC proposals, they would only be allowed to use client securities to cover their current exposure or finance the transactions of the customer. They would not be permitted to employ excess collateral to finance their own business.
The main industry concerns are that this prohibition on re-hypothecation and requirement of segregation would cause market participants to incur additional costs to separate the collateral as well as restrict the use of pledged collateral and possibly constrain liquidity in the capital markets.
Source:
http://www.forbes.com/sites/tomgroenfeldt/2015/02/21/new-sec-swaps-rules-could-impact-dealers/
Asia
HKEx goes short
Hong Kong Exchanges and Clearing (HKEx) will launch securities borrowing and lending for covered short sales in the Shanghai-Hong Kong Stock on March 2.
These new rules will only apply for northbound Stock Connect uses. It covers Shanghai-listed A shares that are accessible to outside investors through the platform and totals 568 stocks of the 950 tally that are quoted in Shanghai. Neither Qualified Foreign Institutional Investor (QFII) or Renminbi Qualified Foreign Institutional Investor (RQFII) holders will be able to short shares in Shanghai.
According to the HKEx, the short-selling ratio will be capped at 1% of an eligible stock on a specific trading day and, cumulatively, no more than 5% over 10 consecutive days. On the last trading day before Chinese New Year on 17 February, northbound turnover was RMB 2.67 bn, representing just1% of total Shanghai volumes.
Analysts have said that permitting short-selling may help boost the lukewarm start of the Connect, because demand was subdued, due in part to trading restrictions.
Source:
http://www.reuters.com/article/2015/02/22/china-hongkong-connect-idUSL4N0VW01R20150222
