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Articles tagged by Derivatives

CTA Performance Solid Following UK Referendum Result Societe Generale Prime Services’ CTA Indices show positive performance for commodity trading advisors in the two full days of trading after the UK referendum results – Friday 24 June and Monday 27 June.  In the immediate aftermath of the result on Friday, when ...
CFTC Issues CCP Recovery, Wind-Down Guidance The US Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk (DCR) has issued guidance to clearinghouses to further the development of recovery plans and wind-down Plans.  The CFTC says that for clearinghouses, or Derivatives Clearing Organisations (DCOs), ...
Moex Unveils Exec Board, Exchange Council New Appointments Moscow Exchange has announced a number of new appointments at its executive board and exchange council. Anna Kuznetsova, managing director of Moex’s equity and bond market and Igor Marich, managing director of Moex’s FX and money markets were ...
Basel Committee Highlights Implementation Progress The Basel Committee on Banking Supervision has issued a report stating that overall progress is being made in introducing the Basel III requirements, although it notes that some jurisdictions are facing “challenges” to meet implementation deadlines. In its seventh report ...
ISDA Calls for Infrastructure Standardisation The International Swaps and Derivatives Association (ISDA) has published a whitepaper calling for greater standardisation and automation of derivatives market infrastructures. The new paper, The Future of Derivatives Processing and Market Infrastructure, highlights a number of challenges with existing structures and processes, and recommends several steps the derivatives industry can take to create efficiencies – in particular, by embracing opportunities for further standardisation. "The derivatives industry has become reliant on legacy infrastructures and processes that have been layered on top of each other over time. That might be the result of historical acquisitions, where the respective systems haven't been fully integrated. More recently, the sheer pace of regulatory change has meant firms have been under pressure to tackle the next pressing deadline. The result is a derivatives infrastructure that is duplicative and based on incompatible operating standards, and this isn't sustainable," says Scott O'Malia, CEO of ISDA.
Francisco Handed New Role at Deutsche Deutsche Bank has named Sandra Francisco as its new head of platform sales, North America – listed derivatives and markets clearing, based in New York. Francisco took up the new role on October 7, and is responsible for developing account plans for North American clients transacting in global listed derivatives and markets clearing products. Francisco will also be expected to develop appropriate coverage models and grow profitable market share on a global basis for One Debt, One Equity and One Markets clients in global listed derivatives and markets clearing products.
OTC Reform Pre-empts Expected Exchange Invasion Data from the Bank for International Settlements show financial reform has not led to a greater proportion of derivatives trading on exchanges. Colin Lambert finds out why. As the world’s regulators, led by a very aggressive Gary Gensler-led Commodity Futures Trading Commission (CFTC), sought to reform financial markets post-global financial crisis, the outcome seemed at the time to be the inevitable growth of trading on exchanges. “The world is moving to Chicago” was used as an analogy to express this sentiment – that city being closely associated with the exchange model of course.
Buy Side Calls for Swaps Trading Innovation Representatives of buy side firms called for greater innovation and flexibility around swaps execution at the SefCon VII event in New York on January 18, hosted by the Wholesale Markets Brokers’ Association, Americas, and organised by Profit & Loss. Speakers at the event explained that swaps trading has not changed much for the buy side since the introduction of Swap Execution Facilities (SEFs), with most buy side firms executing their swaps transactions via a request for quote (RFQ) format. The only difference now, they said, is that the RFQ occurs on an electronic platform rather than via the phone.
Four Days to Profit & Loss Latin America 2017 What (and who) will play a major role in Mexico's economy this year? How will Mexico's economy perform against numerous geopolitical challenges in 2017? This will be the central topic during the opening panel, Mexico's Economy: Riding the Storm, at the 9th annual Profit & Loss Latin America conference on February 9 at the St Regis in Mexico City. The panel will follow an opening keynote address from Juan Garcia, Director of Domestic Operations, Banco de Mexico, and is part of a busy line up on Thursday (February 9). With panels looking at the impact of clearing, the challenge of liquidity and the impact of technology in regional markets, there is plenty for everyone so be sure to Register today to ensure your seat for this timely and important discussion. View the full day's agenda here and make your plans now to network with colleagues, industry leaders and FX professionals during a day filled with insight and key knowledge about the industry.
CME Introduces “Triangulation” to Boost Options Liquidity CME Group has gone live with the “triangulation” of its volatility quoted FX options (VQO), a new system that links the VQO, premium quoted options (PQO) and futures books in order to boost liquidity. VQOs, which were launched on November 14, allow market participants to quote the standard 2:00pm expiration contracts in annualised volatility terms. When using a VQO, once a trade occurs the implied volatility input is converted into a USD premium using a standard options pricing model and the participants exchange a standard premium option and a delta hedge of standard underlying futures. This enables market participants to trade in volatility and clear in premium.
CloudMargin, SmartDX Partner to Tackle VM Rules CloudMargin has partnered with SmartDX to produce a new offering aimed at helping firms comply with the new daily variation margin (VM) Rule that go into effect March 1. CloudMargin provides web-based collateral and margin management solutions, while SmartDX offers automated trade and relationship document generation, collaboration and processing in the capital markets. The two firms have now teamed up to produce an offering designed to enable buy-side investors and other over-the-counter (OTC) derivatives market participants to quickly and comprehensively sign new ISDA Documentation or "repaper" their OTC agreements with existing or new counterparties.
SocGen Launches New Risk Event Tracker App Societe Generale (SocGen) has launched a new Web app that uses FX options to monitor the pricing of risk events, such as elections, central bank meetings or economic releases. The app, the SG FX Event Tracker (SG FX-ET), computes the overnight forward volatility that the FX options market expects for any trading day up to one year ahead, linked to the bank’s internal data and the weights that its market makers attach to risk events. The charting module is designed so that users can dynamically compare the relative pricing of an event according to different currencies and can directly compare the pricing of different events.
Sucden Launches OTC FX Options Service Sucden Financial has launched an OTC FX options service. The new offering is designed to provide users with the ability to price their own option structures online and benchmark those prices against independent data for greater transparency. It will offer clients the choice of trading via an online trading platform or traditional voice methods. Talking to Profit & Loss about the launch, Pritesh Ruparel, Sucden’s head of FX options origination and structuring, identifies three main goals for the new service. The first is improving the cost and availability of data for clients, the second is providing access to good liquidity and the third is improving the overall user experience for Sucden clients trading FX options.
Predicting the Impact of Brexit 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.
LedgerX Becomes First CFTC-Approved Digital Currency Venue The US Commodity Futures Trading Commission (CFTC) has issued an order granting LedgerX, an institutional trading and clearing platform for digital currencies, registration as a derivatives clearing organisation under the Commodity Exchange Act (CEA). LedgerX will be the first US federally regulated exchange and clearing house for derivatives contracts settling in digital currencies. Under the order, LedgerX will be authorised to provide clearing services for fully collateralised digital currency swaps. LedgerX, which was also granted an order of registration as a Swap Execution Facility (SEF) on July 6, 2017, initially plans to clear bitcoin options.
LCH and Euronext Agree Derivatives Clearing Deal LCH has signed binding terms with Euronext NV (Euronext) for the continued provision of clearing services for listed financial and commodity derivatives with LCH SA, the Group’s continental European operating subsidiary. The agreement, which is expected to be finalised in Q4 2017, covers the clearing of financial derivatives and commodity derivatives for a period of 10 years. Under the terms of the agreement, LCH SA and Euronext will also work together to achieve a targeted range of reduction in clearing fees of 5% to 15% with effect from January 2019, depending on each specific product and service. The precise quantum of the reduction for allocation to each derivative product line will be refined in consultation with customers.
Negara Issues Offshore Ringgit Warning Malaysia’s central bank – Bank Negara Malaysia (Negara) – has issued a statement warning that offshore trading of the ringgit contravenes Malaysian laws. The statement was issued to the recent introduction of ringgit futures at the Singapore Exchange (SGX) and the Intercontinental Exchange (ICE), with Negara claiming that these products are “inconsistent with Malaysia’s foreign exchange administration (FEA) policy and rules”. Negara adds: “The Malaysian ringgit is a non-internationalised currency and thus, offshore trading of ringgit, in any form whether as a non-deliverable forward traded out of offshore financial centres or as a futures, options and other derivative contracts on exchanges outside of Malaysia, is against Malaysia’s policy.” In the statement, BNM reminds market participants that failure to comply with the FEA rules is an offence under the Financial Services Act 2013 and Islamic Financial Services Act 2013.
LCH Introduces SwapClear Client Account LCH has introduced a new type of client account within its SwapClear service. The account allows buy side clients to deliver collateral directly to the clearing house and to retain beneficial title to it. Segregation at an International Central Securities Depository (ICSD) ensures that such securities collateral remains client-specific. This aims to increase operational efficiency and also eliminates the transit risk arising where a client delivers collateral to the clearing house via its clearing member. JP Morgan is the first clearing member, and Aviva Investors is the first buy side client, to use this new account type. BNP Paribas and HSBC have also confirmed their readiness to support the new account structure.
SGX Touts 74% YoY FX Futures Growth SGX has released data showing that the total volume of its FX futures contracts grew 74% year-on-year to 759,983 contracts in July, and open interest in these contracts was up 15% YoY to 60,105 contracts as at the end of July. The renminbi continued to strengthen against the US dollar in July, extending a trend from the previous month. However, the USD/CNH spot market traded in a narrow range resulting in low volatility that also affected overall volumes for USD/CNH futures across various exchanges. While the total exchange-traded USD/CNH futures contracts traded globally fell 12% month-on-month in July, the volume for SGX’s USD/CNH futures in the month fell by 7.7% to 150,567 contracts.
ISDA: Markets Likely to Avoid Disruption from VM Rules The derivatives industry can breathe a sigh of relief regarding new variation margin (VM) requirements, as it now looks like majority of market participants will be ready for them, according to the International Swaps and Derivatives Association (ISDA). In a posting on the ISDA website, the association’s CEO, Scott O’Malia, notes that as recently as six months ago “the industry was facing the possibility of real disruption”. “With the variation margin ‘big bang’ set for implementation on March 1, but with only a fraction of the necessary changes to documentation completed, there was a very material risk that a large part of the market wouldn’t be able to trade,” he comments.
Moex Launches FX Fixing Instruments Moscow Exchange (Moex) is now offering instruments to trade at the Moex FX USD/RUB and EUR/RUB fixing prices with clearing and settlement via its clearinghouse, NCC Clearing Bank. The new offering aims to provide Russian and international banks with a hedge against the currency risk of OTC trading in rouble NDF with the net return calculated at maturity as the difference between the forward rate and the Moex fixing rate. The fixing instruments, USDRUB_FIX0 and EURRUB_FIX0, are traded from 10:00-12:15 MSK on days when the Moex USD/RUB FX Fixing and Moex EUR/RUB FX Fixing (Т+0) are computed.
Kulkin Named Director of CFTC Division The US Commodity Futures Trading Commission (CFTC) chairman Christopher Giancarlo has appointed Matthew Kulkin to serve as director of the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO). Kulkin comes to the CFTC from the law firm Steptoe & Johnson, where, as a partner, he advised financial market participants on legislative and regulatory issues. “I am pleased to welcome Matt to the commission,” says Giancarlo. “He comes with a wealth of knowledge on Dodd-Frank Act regulation and our derivatives market that will serve us well.”
ISDA Weighs in on Brexit Impact Brexit is unlikely to have any impact on the contractual certainty of derivatives trades, but could affect some trade lifecycle actions, according to International Derivatives and Securities Associations (ISDA) CEO, Scott O’Malia. In an online post today O’Malia reveals that ISDA recently conducted analysis on one the ability of banks and investment firms to perform existing contractual obligations under transactions between the 27 European Union (EU) member states and UK counterparties that were entered into before Brexit. Specifically, this analysis focused on six jurisdictions – France, Germany, Italy, the Netherlands, Spain and the UK. According to O’Malia, the analysis shows that it is unlikely that there will be an impact on the performance of contractual obligations on existing trades – which includes payments, settlements, transfer of collateral and the exercise of pre-agreed options.
ISDA Seeks to Establish Digitalisation Framework The International Swaps and Derivatives Association (ISDA) has published a conceptual version of its ISDA Common Domain Model (CDM), which sets out the required elements to achieve a single digital representation of trade events and actions – something it says is “an important precursor to realise the full potential of new technologies, such as distributed ledger and smart contracts”. When fully developed, ISDA says the CDM will provide an industry standard blueprint for how derivatives are traded and managed across the lifecycle.
SGX Expands US Presence Singapore Exchange (SGX) has expanded its US presence, opening SGX America in Chicago.  SGX says it presence in the US will enable it to better serve a growing client base in the region and meet the rising international investor appetite to access and risk manage Asian exposure. Loh Boon Chye, CEO of SGX, says, “This is an important milestone in SGX’s international expansion strategy and reinforces our status as Asia’s most connected exchange. SGX’s knowledge of the Asian markets, and the diversity of our Asia-linked futures and options will resonate with investors in North America, who are increasingly looking East for growth opportunities across asset classes. A physical presence in the US will also better enable us to develop connectivity with the world’s largest equities and fixed income market.”