A recap of the derivatives industry news in the last weekGlobal
Support builds for ISDA principles
Eleven financial associations have lent their support for a new set of derivatives reporting standards developed by the International Swaps and Derivatives Association (ISDA). The aim is to create greater cross border consistency and standardisation of regulatory reporting in the $630trn OTC swaps market.
The Associations include the Australian Financial Market Association (AFMA), the Alternative Investment Management Association (AIMA), the British Bankers’ Association (BBA), the German Investment Funds Association (BVI), the European Fund and Asset Management Association (EFAMA), the Futures Industry Association (FIA Global), the Global Foreign Exchange Division (GFXD) of the Global Financial Markets Association (GFMA), ISDA, the Managed Funds Association (MFA), the Securities Industry and Financial Markets Association (SIFMA) and its Asset Management Group (SIFMA AMG), and The Investment Association.
Although Dodd Frank and the European Market Infrastructure Regulation have increased the amount of data being reported on OTC derivatives transactions, there is still widespread industry confusion. The ensuing fragmented approach has delivered incomplete and inconsistent data which makes it difficult for regulators to paint a true picture of risk across jurisdictions.
Sources: http://next.ft.com/bec10986-1332-11e5-bd3c-00144feabdc0#axzz3d6wEXbMe
Europe
EACH offers greater insight into recovery and resolution process
The European Association of CCP Clearing Houses (EACH) published a paper, ‘An effective Recovery and Resolution regime for CCPs: additional subjects to be considered’ which explores leading issue of the industry such as their total loss absorbing and additional pre-funded capacities. Other topics on the agenda include initial margin haircutting, early intervention and resolution authority.
Although the organisation notes that the recovery and resolution of CCPs is an extremely remote possibility, it stresses the importance of having a structure as well as the adequate tools to cope with the situation. It also calls for legislators and regulators to apply a consistent application of the recovery and resolution framework at a global level since CCPs may operate in different jurisdictions and clear products which are traded globally.
You can find the report in DerivSource’s whitepaper and reports library – http://development.derivsource.com/resource-library/topics/recent
Eris interest rate swap futures to hit ICE Europe
Intercontinental Exchange (ICE) is set to launch Eris interest rate futures in both euro and sterling denominations on Ice Futures Europe, formerly known as Liffe, The contracts will clear at ICE Clear Europe and are based on the product design of Eris Exchange’s US dollar-denominated swap future contracts.
The products aim to replicate the cash flows of comparable swaps, but will be less expensive to trade and clear once rules on clearing of OTC derivatives come into force.
ICE also revealed plans to launch Eris iTraxx Main and Eris iTraxx Crossover, during the second half of 2015. ITraxx indices are a family of European, Asian and Emerging Market tradable credit default swap indices.
At the end of last year, ICE entered into a multi-year license agreement with Eris to list futures and options contracts based on the Eris Methodology product design on the ICE platform, which remains patent pending. Under the agreement, ICE is licensing the rights to list European and US credit default swap (CDS) futures and European interest-rate futures based on the methodology.
UK
LCH.Clearnet rings alarm bells
LCH.Clearnet, one of the world’s biggest clearing houses, has warned it may soon reach the limit of its ability to use the repurchase market to park its collateral as banks are squeezed by tougher regulations under Basel III.
According to the world’s largest interbank swaps clearer, the new rules have made trading repo less economical and that it will reach a point at which it has to stop accepting new trades for clearing, as they will be unable to conduct some $150bn of client funds through the market each day. Repo has provided a valuable source of short term funding to banks and other financial entities because it allows bonds to be exchanged for cash on the proviso that they will be repurchased at a later date. It has also often been seen as a bellwether of the financial system’s health.
For clearing houses, the issue is acute because post-financial crisis rules have pushed more OTC derivatives trades through clearing houses. That requires them to collect high-quality collateral like cash from clients to cover potential losses should a counterparty default. European regulation prevents them holding more than 5% of the cash they receive from clients unsecured, so they exchange it for short-term bonds — a move known as “reverse repo.
Source: http://next.ft.com/c90cc240-0db5-11e5-aa7b-00144feabdc0
