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Regulation

Assessing the Cost of Regulation Although much is said about the rising cost of regulation in financial markets, there have been few attempts to empirically demonstrate the impact. A new Staff Working Paper published by the Bank of England, entitled Dealer intermediation, market liquidity and the impact of regulatory reform, and written by Yuliya Baranova, Zijun Liu and Tamarah Shakir, seeks to assess the impact and finds that while the cost of regulation is higher in stable market conditions, in periods of stress benefits accrue.
CFTC to Review Swaps Reporting Rules The US Commodity Futures Trading Commission (CFTC) says it is to launch a “comprehensive review” of its swap data reporting regulations. CFTC says it will focus on changes to the existing regulations and guidance with two goals at the forefront: ensuring that it receives accurate, complete, and high quality data on swaps transactions for its regulatory oversight role; and to streamline reporting, reduce messages that must be reported. It also says it wants to “right-size the number of data elements that are reported to meet the agency’s priority use-cases for swaps data”.
FSB Publishes Update on Misconduct Risk The Financial Stability Board (FSB) has published a progress report for G20 leaders on its work plan to reduce misconduct in the financial sector. The work plan was established in May 2015 following what the FSB terms “significant and widespread incidents of misconduct in recent years, and given the potential of misconduct to harm institutions and customers and impair trust in the financial system”. The latest report details the recent actions taken and recommended by the FSB and the standard-setting bodies.
Basel Committee Sees Reform Progress The Basel Committee on Banking Supervision (BCBS) has published a report for the G20 leaders at their Summit in Hamburg on 7-8 July updating the leaders on the implementation of Basel III regulatory reforms since the Committee's last progress report in August 2016. Overall, the report finds that further progress has been made in implementing Basel III standards. “The implementation of capital and liquidity standards has generally been timely and consistent, and banks continue to build higher and better capital and liquidity buffers,” BCBS says.
FCA Holds Off Retail Rule Change as ESMA Considers Stronger Intervention Following an announcement from the European Securities and Markets Authority (ESMA) that it is considering exercising its product intervention powers to address its concerns over the use of contracts for difference (CFD), rolling spot FX and binary options contracts by retail traders, the UK’s Financial Conduct Authority (FCA) says it will delay its own rules on the products. In a statement, ESMA says it has been concerned about the provision of speculative products such as CFDs, rolling spot FX and binary options to retail investors for a “considerable period of time” and has conducted ongoing monitoring and supervisory convergence work in this area.
CFTC in First Non-Prosecution Agreements with Former Citi Traders The US Commodity Futures Trading Commission (CFTC) has for the first time entered into non-prosecution agreements with subjects of an official investigation into misconduct. The CFTC says it has signed the agreements with three former Citi traders, Jeremy Lao, Daniel Liao, and Shlomo Salant thanks mainly to what it terms their “timely and substantial cooperation, immediate willingness to accept responsibility for their misconduct, material assistance provided to the CFTC’s investigation of Citigroup, and the absence of a history of prior misconduct.”
FSB Sees Derivatives Reform Progress: But More Needed The Financial Stability Board (FSB) has published three reports looking at the ongoing derivatives markets reform process and while the news is broadly positive the FSB says there is still more progress needed on trade repositories (TRs). A summary of the papers will be delivered to the G20 heads at the upcoming Hamburg meeting – the reform process started in September 2009 at the Pittsburgh G20 summit. The latest reports find that implementation of the reforms is now well progressed, although this has taken longer than originally intended due to the scale and complexity of the reforms and other challenges.
CME Gets Green Light for OTC FX Options Clearing Launch CME Group has received regulatory clearance from the US Commodity Futures Trading Commission (CFTC) to start providing clearing services for OTC FX options. The service will launch with dealer-to-dealer client clearing and is planned to be available in Q4. It will sit alongside CME’s suite of other FX cleared instruments, including listed FX futures and options, cash-settled forwards and NDFs. Although FX is not currently mandated for clearing, Paul Houston, global head of FX products for CME, says the move is in-line with the group’s aim to provide cost-effective clearing solutions for market participants.
State Street FX Platforms Get MTF Approval State Street says it has received approval from the UK’s Financial Conduct Authority (FCA) to operate its FX Connect and Currenex platforms as multi-lateral trading facilities (MTFs) for foreign exchange within the jurisdiction of MiFID II. Both platforms will now operate as MTFs and be upgraded to be compliant with MIFID II upon implementation in January 2018, State Street says. For institutions that fall under the MiFID II regime in Europe, “financial instruments” can only be traded on the new MTFs.
ISDA: Time Ticking on Margin Deadlines The new variation margin deadlines still pose a substantial challenge to financial services firms, despite the “substantial progress” that many of these firms have made in their compliance efforts, according to Scott O’Malia, CEO of the International Swaps and Derivatives Association (ISDA). The variation margin requirements came into effect for swap dealers on March 1, 2017, but the Commodity Futures Trading Commission (CFTC) issued a no-action letter in February, which stated that it would not enforce the new rules for the first six months after this date.