The political agreement reached last week in Brussels to implement the EMIR 2.2 regulation has been welcomed on both sides of the Atlantic. The updated regulation will broaden the role of the European Securities and Markets Authority (ESMA) to include more supervisory tools and on-site inspections; introduce a tiered system of recognition for offshore CCPs depending on their product set and systemic importance to the EU; and introduces the requirement that systemically important non-EU CCPs establish themselves in the EU if they seek to access the single market.
The Bank of England and European Securities and Markets Authority (ESMA) have announced that they have agreed Memoranda of Understanding (MoUs) regarding cooperation and information-sharing arrangements with respect to central counterparties (CCPs) and central securities depositories (CSDs).
The MoUs follow the adoption by the European Commission in December 2018 of temporary equivalence decisions on the future UK legal and supervisory framework for UK CCPs and CSDs.
The Commission’s implementing acts would come into effect in the result of a no-deal Brexit. In that scenario, they would allow UK CCPs and CSDs to be recognised by ESMA from 30 March 2019, and therefore continue to provide services respectively to EU clearing members, trading venues and also provide notary and settlement services for securities issued under EU law.
The MoUs will also only take effect in the event of a no-deal Brexit.
The International Swaps and Derivatives Association (ISDA) has published a set of best practices for central counterparties (CCPs), aimed at ensuring greater consistency in risk practices at CCPs across the globe.
The recommendations follow a default at Nasdaq Clearing last September, which exceeded the defaulting member’s margin and default fund contribution and required the use of mutualised resources – the second such event in five years.
The paper highlights steps that can be taken to minimise the potential for a member default to impact other members and the financial system as a whole, except in an extreme stress event.
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.
The Monetary Authority of Singapore (MAS) says it will introduce regulations to require OTC derivatives to be cleared on central counterparties (CCPs) with effect from 1 October 2018.
MAS says central clearing will make the trading of OTC derivatives in Singapore safer as it mitigates counterparty credit risks inherent in these trades.
The mandatory clearing requirement will apply to Singapore dollar and US dollar fixed-floating interest rate swaps as these are the most widely traded interest rate derivatives in Singapore. Banks whose gross notional outstanding OTC derivatives exceed $20 billion will be required to clear their trades through CCPs that are regulated by MAS.
The Commodity Futures Trading Commission (CFTC) has accused the European Commission (EC) of attempting to renege on a previously agreed framework for cross-border CCP recognition, with the EC refuting this characterisation.
Speaking at the Futures Industry Association’s (FIA) annual conference in Boca Raton, Florida, Brian Quintenz, a commissioner at the CFTC, outlined details of this recent disagreement.
He reminded the audience that in 2016, regulators in the US and Europe agreed a “CCP equivalence determination”, which established a common approach to the regulation and supervision of cross-border CCPs.
Speaking at the Commodity Futures Trading Commission’s (CFTC) Market Risk Advisory Committee (MRAC) meeting today in Washington, a range of market participants weighed in on the expected impact of Britain’s exit from the European Union
Eileen Kiely, director at BlackRock, said that markets are currently in a period of low volatility – both implied and realised across asset classes globally – and that she does not expect Brexit to disrupt this trend. This is in part because Kiely believes that markets are currently pricing the risks associated with Brexit appropriately.
A new whitepaper issued by Contango Markets, a consultancy firm based in London, warns that buy side firms are increasingly being dumped by derivatives clearing firms that are re-evaluating their business models following changing cost pressures.
“Regulation, higher capital requirements and constraints on revenue models in derivatives clearing are changing the way banks in particular look at their clients. In line with a trend that started some years ago, the number of derivatives clearing firms is shrinking further.
“Bank must earn more from their clients or be faced with exiting the listed derivatives brokerage business (unwelcome), a
Three papers have been released focusing on central counterparty (CCP) risk and how CCPs should be resolved or recovered in the event of a failure. The Committee on Payments and Market Infrastructures (CPMI) together with the International Organisation of Securities Commissions (Iosco) has issued a consultative report providing further guidance on certain aspects of the […]