A synopsis of the headlines in the derivatives industry from the last week.
Global
Nasdaq throws down gauntlet
Nasdaq announced the launch of a new, low cost energy futures exchange which aims to halve the cost of trading the commodity.
The exchange which is set to debut in mid-2015, could challenge the leading position of CME Group and Intercontinental Exchange. It will not only offer competitive pricing but also a new clearing solution and high-performance technology for futures and options based on key energy benchmarks including oil, natural gas and U.S. power.
According to Nasdaq, a total of 19 brokers, proprietary trading firms and physical commodity traders had committed to support the exchange, including Goldman Sachs, JPMorgan Chase, Morgan Stanley as well as Virtu Financial, the proprietary trading firm.
Source: http://www.ft.com/cms/s/0/c3ed2314-c813-11e4-8fe2-00144feab7de.html?siteedition=uk#axzz3URc8CGH3
Press release: http://development.derivsource.com/articles/nasdaq-expands-global-commodities-initiative-energy-derivatives
The net widens
The Financial Stability Board (FSB), the body that co-ordinates financial regulators, and the International Organisation of Securities Commissions (IOSCO), the umbrella body for global market regulators surprised markets by suggesting major changes to their proposed methodology for assessing which asset managers should be considered systemically important financial institutions (SIFI) or those too big to fail.
An updated consultation paper – http://www.iosco.org/library/pubdocs/pdf/IOSCOPD479.pdf – recommended a revised “dual approach” that considers leverage as well as the size of assets under management. Regulators will also use a broad measure of all outstanding derivatives positions (gross notional exposure.) This could see a greater number of buy-side players including hedge funds and private equity firms facing tighter supervision and constraints.
This is a marked change from the first FSB/IOSCO paper published in January 2014 which only focused on the very largest mutual funds with assets of over $100bn. The move has been criticised by the Investment Company Institute, the trade group representing asset managers as well as the Alternative Investment Management Association, the hedge fund industry’s lobby group.
Source: http://www.ft.com/cms/s/0/a62ac16e-c8c3-11e4-8617-00144feab7de.html#axzz3URc8CGH3
Europe
Europe to welcome central clearing by year end
Although deadlines have been continually shifted, the European Union is expected to make clearing of interest rate swaps mandatory from later this year.
Mandating clearing of interest rate swaps (IRS), accounts for 80% of the world’s $690 trn derivatives market. It would be phased in for different users, with pension funds slated to join the fray in 2017. However, that deadline could be extended by a further year.
Pension funds have resisted paying a margin, claiming that the cost would ultimately erode returns for investors. Some regulators are becoming more flexible in applying rules introduced in the aftermath of the crisis if it helps boost growth.
Source: http://uk.reuters.com/article/2015/03/12/eu-derivatives-regulations-idUKL5N0WE2HX20150312
UK
OpenGamma and ICAP join forces
Risk management software firm OpenGamma and interdealer ICAP are teaming up to develop a utility that will calculate how much collateral is required for bilateral derivatives trades.
JP Morgan, Goldman Sachs and Deutsche Bank have all been involved in discussions about the creation of the open source model to work out the margin they will need to post for privately-negotiated deals between banks. If successful, it may expand to include tools for trade processing, payments, collateral management and exchanges of risk data.
OpenGamma’s open source code will initially be based on a standardised methodology developed by the International Swaps and Derivatives Association (ISDA), the main industry trade body. However it will be replaced by a different ISDA methodology that it is currently working on. The source code will be released on Github, the code-sharing website.
Source: www.ft.com/cms/s/0/e0661e3e-c69b-11e4-a13d-00144feab7de.html#axzz3URc8CGH3
