Regulators urged to adopt principles-based substituted compliance


Regulators urged to adopt principles-based substituted compliance

http://thetradenews.com/news/Asset_Classes/Derivatives/Regulators_urged_to_adopt_principles-based_substituted_compliance.aspx

US regulators need to take a less mechanical approach to determining whether to accept foreign regulatory standards for OTC derivatives trading, according to two industry trade bodies.

Derivatives trade body, the International Swaps and Derivatives Association (ISDA) and US buy-side association, the Investment Company Institute (ICI), both suggest that an overly rigid application of US regulatory standards could have a significant negative effect on markets.

Both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have said they are seeking to apply a form of substituted compliance, where US banks trading abroad would not be subjected to their oversight if there are equivalent OTC derivatives trading rules in those jurisdictions.

In a letter to the SEC this week, ICI’s general counsel, Karrie McMillan, and managing director, Dan Waters, wrote: “we urge the SEC not to apply its substituted compliance framework in an overly mechanical manner that could effectively preclude a substituted compliance determination with respect to a similar foreign regime.”

The ICI is concerned that in some areas, such as the timely reporting of swap trades, foreign regulations could fail to qualify for substituted compliance due to minor technical differences, such as different reporting timeframes or differences in trade information specifications.

“We encourage the SEC to look holistically at the foreign regulatory authority regulatory framework for reporting to determine whether it broadly achieves the G-20 goals of transparency of the derivatives markets,” the letter said.

ISDA has also called for regulators to take a less technical approach to substituted compliance. Instead of focusing on specific regulatory rules developed since the Group of 20 met to agree on international financial regulation in Pittsburg in September 2009, they should focus on whether different regulations achieve the key goals of the G-20.

ISDA said markets should instead focus on a principles-based approach, and identify whether a foreign regulatory regime meets the common principles agreed by the G-20.

“All comparisons should evaluate regulatory regimes against these common principles, rather than requiring identical or element-by-element correspondence of rules,” a statement from ISDA read.

John Bakie
john.bakie@information-partners.com

Nasdaq OMX’s European derivatives subsidiary eyes new products


Nasdaq OMX’s European derivatives subsidiary eyes new products

http://www.efinancialnews.com/story/2013-08-23/nasdaq-omx-nlx-third-party-listings?omref=email_TradingTechnology

23 Aug 2013 Updated at 12:40 GMT

 

As Nasdaq OMX’s US securities market deals with the fallout from a three-hour outage on its platform yesterday, across the Atlantic its new European derivatives subsidiary is looking for ways to build its business, potentially through the listing of new third-party contracts.

NLX, which launched in June and offers trading in popular long and short-term interest rate derivatives, said it would be willing to consider listing instruments developed by external providers.

Charlotte Crosswell, chief executive of NLX, told Financial News earlier this week: “At NLX, we have the infrastructure, vendors and route to clearing already in place. It’s relatively easy for us to list new products quickly. This gives us the flexibility in how we approach listing new types of products. You might have a new product that works well, but then you need to have the industry backing and bring it to market at the right time – it can be challenging.”

The move comes as US-based Eris Exchange is considering ways to bring its interest rate contracts to Europe and as GMEX Group, a new derivatives venture run by former Chi-X Europe chief operating officer Hirander Misra, is looking at creating new methodologies for developing products across multiple asset classes.

The emerging regulatory environment for swaps trading is presenting opportunities for firms to develop new types of derivatives that offer alternatives to over-the-counter derivatives.

The rules will push OTC derivatives that can be standardised onto electronic trading platforms and through clearing houses. This has led some to look to products that replicate OTC exposures through an exchange-traded contract.

Under the Dodd-Frank Act, the obligation to clear swaps has already kicked in for most US market participants. Exchanges including Eris and CME Group have launched swap futures that mimic interest rate swap contracts in an exchange-traded environment. Mandated trading of OTC derivatives contracts on trading platforms known as swap execution facilities will start in the US from October 2.

The swap futures from Eris and CME are still gaining traction, say market participants.

Nasdaq-listed stocks were halted for almost three hours on Thursday because of a problem with the Securities Information Processor, a system that consolidates and disseminates prices to US markets, according to a statement from Nasdaq OMX.

The glitch impacted the data feed that distributes pricing information for securities listed on Nasdaq and is not believed to be linked to the exchange’s core technology. The bourse said it had resolved the issue within 30 minutes and spent the remainder of the time coordinating with other market participants and regulators to ensure the orderly resumption of trading.

NLX runs on Genium Inet technology, which incorporates the platform that Nasdaq acquired when it purchased the OMX Group of Nordic exchanges in 2007. Nasdaq’s US markets run on Inet, which it bought from agency broker Instinet in 2005.

–write to anish.puaar@dowjones.com and follow on Twitter @anishpuaar

CloudMargin launches cloud-based collateral management tech


CloudMargin launches cloud-based collateral management tech

http://www.finextra.com/News/Announcement.aspx?pressreleaseid=51271

Source: CloudMargin Limited

CloudMargin Limited, a London-based specialist collateral management software developer, has today launched a new, cost-effective approach to OTC derivatives collateral management for the buy-side.

“Until now, much of the buy-side had been priced out of having a dedicated collateral management platform and had no viable alternative to spreadsheets,” commented Andy Davies, co-founder and CEO of CloudMargin. “I am thrilled that CloudMargin’s innovative approach and use of the latest cloud-computing technology means we can offer a full featured, full-cycle collateral and margin management platform that’s well within the reach of even the smallest buy-side firm.”

CloudMargin supports the full process of collateral and margin management, from storing CSA parameters through calculating and issuing margin calls to handling disputes, selecting eligible collateral and instructing market movements. Real-time reporting and a unique dashboard bring a new level of oversight. Furthermore, CloudMargin cleverly supports the drive towards CCP mandated by Dodd-Frank and EMIR, giving a harmonized view of bilateral and cleared derivatives and a simple yet controlled process.

CloudMargin will be bringing this new approach to a broad spectrum of buy-side firms, from hedge-funds and asset managers, pension fund managers and insurance companies through to corporate treasury departments and energy firms. All of these are seeing collateral volumes rocket and operational complexity soar while at the same time internal and external scrutiny over the collateral process has never been higher.

Even for firms below the threshold for central clearing, regulatory changes under Dodd-Frank and EMIR are stretching manual processes and the use of spreadsheets to breaking point.

CloudMargin gives the buy-side an alternative to spreadsheets so they can finally have a secure, controlled, efficient and cost-effective collateral management operation. 

Reuters – Swaps clients plan US bank exodus


http://www.reuters.com/article/2013/08/12/markets-credit-idUSL2N0GD1JA20130812

 

NEW YORK, Aug 12 (IFR) – US banks are at risk of losing overseas swaps market share as European clients have begun making every effort to avoid getting caught up in costly cross-border derivatives rules that were finalised by the CFTC last month, and come into effect this October.

European hedge fund and asset managers are threatening to transfer their swaps trading activities away from branches of US banks and towards European competitor houses to ensure they avoid the reaches of Dodd-Frank, which mandates an array of costly compliance measures, including the central clearing of standardised over-the-counter derivatives.

Many European clients would rather ditch their US bank relationships than bear that cost – just one of the unintended consequences of bad rule-writing according to dealers.

“It’s the one rule that risks the most competitive disadvantage,” said a lawyer at a US dealer. “There’s no way these clients are going to clear with us at this stage.”

Swaps executed by a European client with the foreign branch of a US bank will be required to clear through a central counterparty starting on October 9 – the date that an exemption from compliance with the CFTC’s recently finalised cross-border guidance will expire.

US banks say the deadline is unreasonable and compliance will be near-impossible. And at least one of the CFTC commissioners sympathises.

“My frustration has consistently been with the Commission establishing arbitrary dates that we pluck out of thin air to establish compliance without asking, ‘is this possible?'” said CFTC commissioner Scott O’Malia.

“The cross-border guidance should have required notice and a comment period to find out if the time periods for compliance are adequate. We claim to be having a comment period but I suspect that anyone who does so will have their comments completely ignored.”

Conversely, the October clearing deadline comes two months before the CFTC forces US branches to comply with the rest of the agency’s transaction-level requirements, such as trade execution, documentation, and real-time public reporting.

“The CFTC is asking us to pull a rabbit out of a hat,” said an executive at the London branch of a US bank. “They have offered ‘substituted compliance’ but the European rules are not even done yet. Nobody in their right mind thinks we can demonstrate substituted compliance by the deadline.”

 

AFFILIATED ALTERNATIVE

For end-user clients, mandatory clearing can be a costly business. Clients must negotiate and document relationships with clearing houses and clearing member banks, and are required to post initial margin against all swaps that are passed through the system.

The CFTC guidance provides that foreign branches of US banks could apply to substitute their home country compliance for US rules in cases such as these if the rules were considered “comparable and comprehensive”.

It is likely to be the longer-term answer for most European branches of US houses, but the European rules for clearing are not yet finalised, leaving nothing concrete for comparison.

Some banks are moving to plan B, which involves transferring all client relationships from their foreign branches to affiliates – a separate legal entity that would protect European funds from the clearing mandate.

But that would not be easy, considering that firms such as JP Morgan have more than 10,000 clients booked through their UK branches.

“There are a number of impediments; it’s very difficult to move clients to another legal entity. Plus, many of those affiliates have regulators of their own who will raise concerns about wholesale transfers of clients,” said the lawyer.

 

NO-ACTION REQUEST

US banks say they have sent the Commission requests for an extension to the deadline, by way of no-action relief or some other format. Given the Commission’s penchant for issuing no-action relief – the agency has issued more than 100 in connection with Dodd-Frank to date, a pushback of the compliance date seems possible – if not likely.

If history is anything to go by, the CFTC is likely to keep the industry in suspense until the eleventh hour.

“There’s no rhyme or reason for how the no-actions are issued,” said O’Malia. “It creates a confusing ad hoc process that leaves a lot of people trying to understand a lot of moving parts when we are not following the Administrative Procedure Act. We’re using and abusing the no-action relief system.”

The development represents another trough in the often tumultuous process of aligning cross-border implementation of new rules for the OTC derivatives market between Europe and the US.

For the past two years, US banks have been warning that the CFTC’s hurried pace in implementing the rules of Dodd-Frank would put US dealers at a competitive disadvantage.

Just over a year ago, the agency issued proposals that would have forced branches of US banks to comply with all transaction-level requirements in July of this year.

But European entities and US lawmakers levied heavy criticism of CFTC chairman Gary Gensler’s approach to international harmonisation of derivatives rules.

In response, Gensler pledged closer co-ordination with European regulators in a joint statement with the EC’s internal market and services commissioner Michel Barnier just before the original proposals were due to take effect.

The scaled-back proposal reduced the CFTC’s powers in determining whether foreign regulations could be substituted for US rules and issued no-action relief for most requirements until European regulators could catch up.

But the proposal may still have over-reached, according to banks. Whether the US banks are able to move their clients over to affiliates in time or the agency issues a no-action relief remains to be seen, but for the moment banks are facing a significant cross-border dislocation.

SGX launches ‘Born to Trade’ initiative


SGX launches ‘Born to Trade’ initiative

http://www.automatedtrader.net/news/at/143926/sgx-launches-born-to-trade-initiative

Singapore Exchange ‘Born to Trade’ initiative aims to attract new derivatives traders to the market

Singapore – Singapore Exchange has lauched its “Born to Trade” initiative. Intended to support the futures trading profession and expand its community, the initiative also highlights the contributions of former and current traders towards the development of the Singapore derivatives market.

Singapore’s entry into global futures trading began in 1984 when the former Singapore International Monetary Exchange (SIMEX) introduced products such as the Nikkei 225 Index Futures and the MSCI Taiwan Index Futures. In the same year, SIMEX launched exchange linkages, known as the Mutual Offset System to-date, with Chicago Mercantile Exchange. SIMEX merged with the Stock Exchange of Singapore in 1999 to form SGX.

“The SIMEX open outcry was like our second home. Many exciting trading deals were made and global partnerships were forged. We now welcome more to join the community and contribute towards the future of derivatives trading in Singapore,” said Mr Ng Tee How, President, AFACT.

“Singapore’s trading floor was the anchor leg of the “follow-the-sun” market in global US Dollars, alongside London and Chicago. SIMEX was the poster child of the intensely competitive derivatives marketplace globally, and its legacy is fondly nurtured and supported by the international fraternity of futures and options traders. SGX is keen to support Association of Financial & Commodity Traders’ (AFACT) efforts in nurturing the art, craft and tradition of professional trading. This pioneering Singaporean legacy of the entrepreneurial risk-taker shines a mirror to Singapore’s own history as successful entrepot – a unique narrative for a community born to trade,” said Mr Michael Syn, Head of Derivatives, SGX.

The “Born to Trade” initiative is part of SGX’s commitment to attract new derivatives traders to the market. The initiative includes several features such a new microsite (www.sgx.com/borntotrade) for trading professionals and potential traders to interact and exchange trading stories. The public is able to learn more of the contributions of former SIMEX traders in the early days through personal testimonies. Market participants and the public are also invited to share their trading experiences and any trading stories at #borntotrade on Twitter and Instagram. Individuals who are interested in building the knowledge and skills for a trading career can also visit the SGX Academy at http://www.sgx.com/academy.

Markit launches new front office IRM analytics solution


Markit launches new front office analytics solution

http://www.automatedtrader.net/news/at/143901/markit-launches-new-front-office-analytics-solution

Markit Integrated Resource Management solution to enable dynamic management of balance sheet resources and optimise trading decisions

London and New York – Markit, the financial information services company, has enhanced its front office analytics solution to enable financial institutions to calculate the costs of funding and capital resources of their over-the-counter (OTC) derivatives trades in a single application.

At a time of regulatory change and when the cost of funding and capital is rising, the new Integrated Resource Management (IRM) solution will enable customers to dynamically manage their balance sheet resources and optimise trading decisions prior to execution. IRM has been installed at a customer site, with implementation at other financial institutions under way.

Under the Dodd-Frank Act, the European Market Infrastructure Regulation (Emir) and Basel III regulations, uncleared OTC derivatives will incur Credit Valuation Adjustment (CVA) risk capital charges, default risk capital charges and minimum initial margins. Meanwhile, market participants trading centrally cleared derivatives will be subject to capital charges for default fund contributions and central counterparty trade exposures and will also be required to fund initial margin.

Paul Jones, director, Markit Analytics, said: “The economics of OTC derivatives are changing. There are numerous capital and funding costs that now need to be considered before executing a trade. By bringing our established CVA, risk weighted assets and initial margin solutions together, our customers can run interactive scenarios with ease to understand the tradeoffs between these components. This was made possible by the speed of the Markit Analytics engine and is the first of its kind.”

Financial institutions will use Markit’s solution to price novation packages and renegotiate credit support annexes (CSA), helping them decide whether to move existing OTC derivative trades onto new Isda CSAs. Financial institutions will also be able to use IRM to replicate initial and variation margin calls under various stress scenarios.

NSE, NASD and Emerging Battle in the Capital Market, Articles | THISDAY LIVE


NSE, NASD and Emerging Battle in the Capital Market, Articles | THISDAY LIVE.

Javelin OTC Derivatives Establishes Presence in Telx’s Chicago Data Center


Javelin OTC Derivatives Establishes Presence in Telx’s Chicago Data Center

http://low-latency.com/article/javelin-otc-derivatives-establishes-presence-telxs-chicago-data-center/?utm_source=weekly&utm_medium=email&utm_campaign=ll_13-06-20

Telx, a leading provider of global interconnectivity, cloud enablement services and datacenter solutions, today announced at SIFMA Tech 2013 that Javelin Capital Markets, an OTC derivatives execution platform, has leveraged Telx’s network & interconnection rich Cloud Connection Center, “CHI1” at 350 East Cermak Road, Chicago, Illinois, providing Javelin with access to Telx’s extensive Financial Services community. As a colocation and interconnection client in Telx’s strategically located data center in downtown Chicago, Javelin can now offer Telx’s financial community high-performance connectivity to derivatives execution platforms for Interest Rate Swaps and Credit Default Swaps. Javelin offers both anonymous electronic and voice-hybrid methodologies for trade execution.

Newly formed Swaps Execution Facilities (SEFs), that have emerged as aspects of Dodd-Frank become implemented, are incorporating their services in secure data center environments. Low-latency connectivity is a critical component for the OTC Derivatives market linking SEFs and Central Counterparty Clearing (CCPs). With CCPs being located in Chicago, the proximity of Telx’s CHI1 facility at 350 East Cermak provides financial customers with high-performance and flexible connectivity to Javelin as well as to other SEF engines from a single location.

“As aspects of Dodd-Frank become cemented in the financial community, the need to establish SEFs in secure environments is a crucial step for our eventual classification as a Swap Exchange Facility,” said Michael Black, MD of Infrastructure of Javelin. “Telx’s ability to provide us with access in their premier Chicago facility, and their proximity to the clearing venues, swaps execution facilities, and buy-side participants put us in a strong market-leading position to service current and future clients.”

“We are excited to have Javelin join the expanding Telx financial ecosystem in our CHI1 facility. Javelin’s secure exchange platform with a state of the art user interface is well positioned in the rapidly changing OTC Derivatives market,” said Shawn Kaplan, general manager of Financial Services for Telx. “In recent months we have seen an increasing number of trading systems turn to Telx and our CHI1 facility, most recently with the announcement of Sky Road joining Telx’s financial community. Javelin and other industry leading financial institutions at 350 East Cermak benefit by connecting with other financial institutions in the facility, which allows them to offer their full suite of services with flexible connectivity to current and future clients.”

Telx’s CHI1 facility, located in the South Loop of the Chicago Central Business District, provides customers with the financial eco-system at 350 Cermak, one of the leading financial eco-systems in the world. As the operators of the “Meet-Me-Room,” and one of the largest colocation providers at the CHI1 facility at 350 Cermak, Telx provides industry leading data center and connectivity services for the global financial community.

Attendees at SIFMA Tech 2013 in New York City can register to attend Telx’s grand opening event of its new flagship data center, NJR3 in Clifton, New Jersey on June 19, 2013 from 3:00 p.m. to 7:00 p.m. Round-trip transportation will be provided by Telx for all registered guests. The event will feature a keynote address by NFL Legend Phil Simms, along with public remarks Clifton Mayor James Anzaldi, State Senator Nia Gill, and Telx’s Executive Vice President of Engineering and Construction Michael Terlizzi. Cocktails and refreshments will be served, and tours of the new data center will be given.

 

Eagle Addresses Regulation with LEI, Cleared Swaps Support


Eagle Addresses Regulation with LEI, Cleared Swaps Support

http://www.referencedatareview.com/article/eagle-addresses-regulation-lei-cleared-swaps-support/?utm_source=weekly&utm_medium=email&utm_campaign=rdr_13-06-19-general

Eagle Investment Systems (Eagle), a leading provider of financial services technology and a subsidiary of BNY Mellon, announced that the most recent release of its portfolio management platform supports regulation for legal entity identifier (“LEI”) and recent cleared swap requirements from the Dodd-Frank legislation.

The LEI initiative has designed a standard universal identifier for organizations involved in financial transactions. Required for regulatory reporting and global efficiency, the industry is now implementing these standardized legal entity identifiers. By adopting LEI, organizations are achieving increased efficiencies in managing entity data and measuring and managing risk. Eagle is helping firms meet this requirement by enabling them to store, analyze and report LEI for a variety of legal entities such as issuers, counterparties, brokers, exchanges and depositories.

As a result of Dodd-Frank legislation, mandates are now requiring swaps transactions to clear through exchanges to help reduce counterparty risk and bring transparency to the over-the-counter (OTC) derivatives market. Through its integrated portfolio management suite, Eagle has streamlined the processing of cleared swaps for clients through enhanced software that now captures and calculates specific deal information.

“Eagle is committed to staying abreast of regulatory changes to help our clients adapt to shifting markets and remain focused on growing their assets,” said John Lehner, president and CEO of Eagle. “We continue to make substantial investments in our products to help simplify risk management and reporting requirements for clients.”

Eagle is hosting an industry webcast, “A 360° View of LEI” at 11:00 a.m. EDT on May 15, where a panel of industry thought leaders will discuss the evolution of LEI and what companies need to consider to meet this regulatory reporting requirement.

Eagle is committed to helping financial institutions worldwide grow assets efficiently with its innovative portfolio management suite of data management, investment accounting and performance measurement solutions that are delivered over its secure private cloud, Eagle ACCESSSM. Since 1989, Eagle has deployed trusted solutions and services that create operational efficiencies and help reduce complexity and risk.

BNY Mellon’s Asset Servicing business supports institutional investors in today’s fast-evolving markets, safeguarding assets and enhancing the management and administration of client investments through services that process, monitor and measure data from around the world. We leverage our global footprint and local expertise to deliver insight and solutions across every stage of the investment lifecycle.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 36 countries and more than 100 markets. As of March 31, 2013, BNY Mellon had $26.3 trillion in assets under custody and/or administration and $1.4 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation.

 

ISDA/FOA SWAP CLEARING TEMPLATE AN IMPORTANT STEP


http://thetradenews.com/news/Asset_Classes/Derivatives/ISDA/FOA_swaps_clearing_template_an_“important”_step.aspx.

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