A recap of the top derivatives industry news from the last week
Europe
SocGen picks up the tempo
It has been a busy week for Societe Generale. The French bank launched Tempo, a collateral management outsourcing solution designed to reduce complexity and operational burdens associated with risk management standards and margining regulations for cleared and uncleared derivatives.
Tempo was designed through collaboration between the firm’s securities services business, Societe Generale Securities Services (SGSS), and its multi-asset prime brokerage specialist, Societe Generale Prime Services (formerly known as Newedge). The multi-asset solution will be made available in agency mode for OTC derivatives, exchange-traded derivatives, securities, securities lending and repo collateral needs. It covers the entire collateral management lifecycle and includes central margining, dispute as well as asset pool management and collateral allocation/optimisation.
Separately, Societe Generale won a mandate from Cyan Oak Capital to process derivatives for its range of alternative investment funds. It will use the bank’s Orchestra product which is a modular and fully integrated third-party post-trade offering comprising, in particular, clearing services for derivatives and post-trade services for middle-office operations, collateral management, settlement and custody.
Moreover, Societe Generale Prime Services will provides Cyan Oak with a prime brokerage offering, from execution and clearing services for listed and OTC derivatives, equities, bonds and foreign exchange for all its multi-asset class funds.
Source:
US
CFTC tinkers with swap rules
The Commodity Futures Trading Commission is fine tuning rules covering swaps in the hope of promoting more-efficient trading on newly designated swaps trading platforms, and to lower remaining barriers to the venues.
The regulator said it would streamline the process for correcting erroneous trades on the swaps platforms. Other modifications to the rules would permit the swaps venues not to have to hold reams of key trading confirmation documents from all participants. The changes aim to relieve SEFs from having to maintain copies of the actual agreements. They would only report primary economic terms [of swaps] as well as any confirmation data they actually have.
This represents a shift from an earlier CFTC stance that would have required the venues to hold comprehensive paperwork on all the trading participants it serves.
The changes were outlined by chairman Timothy Massad in a keynote speech at the International Swaps and Derivatives Association’s (ISDA) annual general meeting. The announcement is part of the CFTC’s efforts to bolster trading on swap execution facilities (SEFs) where volumes have been disappointing. Figures from the agency show that for the most part, activity on the roughly two dozen SEFs has languished after attracting virtually no trading in the 14 months since the rules were implemented.
Trading on SEFs account for about half of the total dollar volume of trading in US swaps overall, and about two thirds of the volumes in credit swaps specifically, according to the CFTC.
Source:
http://www.wsj.com/articles/cftc-fine-tunes-rules-covering-swap-trading-venues-1429801528
Global
Lines in the sand
The split between the US and Europe in swaps trading has accelerated the fragmentation of the global OTC derivatives market since its introduction in the US in October 2013, according to research from the International Swaps and Derivatives Association (ISDA).
The research shows an average 94.3% of regional European interdealer volume in euro interest rate swaps (IRS) was traded between European dealers between July and October 2014. The share of the exclusive European dealer pool fell slightly to 84.5% in December 2014, reflecting a general decline in euro IRS trading activity between European institutions in the fourth quarter of last year.
The proportion of euro IRS trades conducted between European dealers rose 20 percentage points between September and October 2013 to 90.7% in October 2013, suggesting non-US participants started to avoid trading with US dealers where possible to avoid being subject to US SEF rules. Just 2.9% of euro IRS trades were between a European and US dealer in August 2014, compared with 28.7% in September 2013.
A separate survey of 376 end users including non-financial corporates (22%), asset managers (23.9%) and financial institution end users (31.4%) underscored the divisions. It found that nearly 55% thought market fragmentation had occurred while 56.6% believed this was having a detrimental effect on their risk management capabilities.
Fragmentation is not only occurring due to inconsistent timing in the roll-out of new regulations across jurisdictions but also because of the differences in the rules participants are required to meet. This has made it operationally challenging to trade across borders.
More than a third of respondents (36.2%) felt liquidity had deteriorated over the past year while 34.4% felt the number of dealers willing to offer prices on derivatives transactions had shrunk over the same period. This comes at a time of ongoing regulatory and capital reforms, which have put constraints on bank capital, liquidity and resources.
Despite the concerns, 89.9% of end users see derivatives as important or very important elements of their risk management strategies, and 83.4% expected their use of derivatives to either increase or stay the same over the second quarter of 2015.
Source:
www2.isda.org/functional-areas/research/research-notes
