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Regulation

Want to Trade an Uncleared IRS? That’ll be 8bp A new staff working paper from the Bank of England finds that clients trading interest rate swaps in an uncleared environment are paying around eight basis points for the privilege. The paper uses data from trade repositories to study trading and pricing patterns in IRS markets and finds the risk premia attached to, and therefore the pricing of, IRS trades varies greatly. The price differentials in risk premia are, “highly significant in statistical and economic terms,” the paper states. This premium substantially decreases when initial margin is posted and with the client’s creditworthiness.
Cappitech Integrates with CME in Australia Regulatory reporting technology provider Cappitech says it has expanded its integrated reporting solution to CME Group’s Australian Trade Repository (ATR). The firm says the move provides investment firms with automation technology to comply with the Australian Securities and Investment Commission’s (ASIC) Derivative Reporting requirements. Cappitech’s currently cooperates with CME Group on the latter’s European Trade Repository (ETR) that supports EMIR reporting. The firm says that since 2016, over 500 million trades have been submitted to the ETR through its reporting platform.
Industry in Alignment Over CFTC Swap Dealer Rules There appeared to be a broad consensus in the responses to the Commodity Futures Trading Commission’s (CFTC) proposed swap dealer rules that the Commission should retain the current $8 billion de minimis threshold for swap dealer (SD) registration and that NDFs should be excluded from the threshold calculations. Since 2012, Commission regulations have stated that market participants will not be considered a "swap dealer" unless they trade over $8 billion per year in aggregate gross notional amount (AGNA). This $8 billion threshold was meant to be a temporary phase-in period, with the threshold ultimately due to be reduced to $3 billion.
FIA Groups Urge CFTC to Maintain De Minimis Swap Threshold FIA and the FIA Principal Traders Group (FIA) have submitted a detailed letter in reposnse to a US Commodity Futures Trading Commission (CFTC) proposed rule making that urges the Commission to retain the current $8 billion de minimis threshold for swap dealer registration. The associations also suggest the CFTC modifies the calculation methodology to “better align it with the goals of a well-regulated derivatives market”. The letter states that the FIA supports the proposed $8 billion de minimis threshold for swap dealer registration purposes, as well as excepting swaps that are exchange-traded and/or cleared from de minimis calculations, without a notional backstop or haircut.
Bank of England Launches Sonia Transition Consultation The Bank of England’s Working Group on Sterling Risk Free Reference Rates, which is tasked with leading the transition away from Libor to term Sonia rates, has launched a consultation process to help drive the evolution, which is intended to be complete by the end of 2021. The work is part of a global effort to shift interest rate benchmarks away from the scandal-ridden mechanisms such as Libor, Euribor and Tibor, has been launched at a time when attention on the reform process is ratcheting up.
FXC Critical of Shifting Compliance Burden to FX Dealers The Federal Reserve Bank of New York’s Foreign Exchange Committee (FXC) has issued a letter criticising market participants for trying to shift the burden of enforcing internal policies and controls towards FX dealers. In the letter, the FXC says that its member firms have noted that FX market participants occasionally send notices, letters and other communications (“authorisation letters”) to dealing firms “that limit and/or restrict the authority of individuals to submit orders or instructions, trade, invest or authorise settlement-related instructions on the firm’s behalf”.
ASIC Warns Retail OTC Industry Over Conduct The Australian Securities and Investments Commission (ASIC) has called on participants in the retail OTC derivatives sector to improve their practices after recent ASIC activities showed their conduct “fell short of expectations”. The products offered by retail OTC derivatives issuers in Australia include binary options, margin foreign exchange and contracts for difference. ASIC says that a recent review of 57 retail derivative issuers identified a number of risks associated with the products offered to retail investors by OTC derivatives issuers.
Report: How Banks Are Avoiding Dodd-Frank Swaps Rules A new report warns that US banks are using an obscure regulatory footnote to circumvent the swaps market provisions contained within Dodd-Frank. The report was written by Michael Greenberger, a professor at the Maryland Carey School of Law and a former director of the Division of Trading and Markets at the Commodity Futures Trading Commission (CFTC), who has also served as counselor to the United States Attorney General in 1999 and as the US Justice Department's Principal Deputy Associate Attorney General. It was published by the Institute for New Economic Thinking (INET).
Deutsche Bank Fined $205m by New York DFS for FX Misconduct The New York Department of Financial Services (DFS) has fined Deutsche Bank $205 million as part of a consent order for violations of New York banking law. As investigation by the DFS determined that from 2007 to 2013 Deutsche Bank repeatedly “engaged in improper, unsafe, and unsound conduct in its foreign exchange business due to its failures to implement effective controls”. In addition, the DFS says that for certain time periods parts of Deutsche Bank’s electronic trading platforms had the potential to improperly disadvantage customers and improperly affect markets, when certain applications did not perform as intended.
SEC Official Clarifies Bitcoin, Ether Aren’t Securities A Securities and Exchanges Commission (SEC) official explicitly stated today that he does not consider bitcoin and ether (the native cryptocurrency of the Ethereum network), to be securities. Speaking at the Yahoo Finance All Markets Summit in San Francisco, William Hinman, the Director of the Division of Corporation Finance at the SEC, gave a speech about whether digital assets should be considered as securities. Hinman pointed out that the network upon which bitcoin functions has always been decentralised and therefore there is no central third party “whose efforts are a key determining factor in the enterprise”.