Derivatives

Reporting of swaps under DFA has started

Yesterday the CFTC announced that real-time public reporting of swap transactions began on 31 December 2012 (and that large swap dealers had provisionally registered as such):

“Two of the most significant Dodd-Frank reforms began implementation this week,” said CFTC Chairman Gary Gensler. “Real-time reporting brings transparency to the formerly opaque swaps market. Also this week, the largest entities dealing in the swaps market became provisionally registered as swap dealers.

“With these historic reforms, the public, for the first time, can see the price and volume of swap transactions, just as it has benefitted from transparency for decades in the securities and futures markets. The public also will benefit as swap dealers now will be subject to common-sense standards for sales practices, recordkeeping and business conduct rules that will help lower risk to the rest of the economy.”

As of Monday, 65 entities had submitted applications and became provisionally registered as swap dealers. This initial group of entities includes the largest domestic and international financial institutions dealing in swaps with U.S. persons. It includes the 16 institutions commonly referred to as the G16 dealers.

Turf War! 10-horse race!

IFR reports on CDS SEFs and OTFs:

The battle for supremacy among credit derivatives trading venues is ramping up, as platforms and dealers alike prepare for the most dramatic regulatory shake-up of market structure in the history of over-the-counter derivatives.

EMIR deadline will be missed by the european supervisory authorities

A few days after the official publication of EMIR, ESMA and the other ESAs confirm that they won’t produce draft RTSs by 30 September 2012, as required by Article 11(15) of EMIR.

EMIR

Earlier today, the Regulation on OTC derivatives, central counterparties and trade repositories was published in the Official Journal of the European Union.

Yet another example of scandalous behaviour by the banks

In a response to the LIBOR/EURIBOR scandal the European Commission yesterday adopted amendments to its recent proposals for a Regulation on insider dealing and market manipulation and a related Directive on criminal sanctions for insider dealing and market manipulation. The definition of market manipulation is amended to capture manipulation of benchmarks such as LIBOR and EURIBOR and attempts at such manipulation.

From the Commission’s press release:

Vice-President Viviane Reding, the EU’s Justice Commissioner said: “Public confidence has taken a nosedive with the latest scandals about serious manipulations of lending rates by banks. EU action is needed to put an end to criminal activity in the banking sector and criminal law can serve as a strong deterrent. This is why we are today proposing EU-wide rules to tackle this type of market abuse and close any regulatory loopholes. A swift agreement on these proposals will help restore much needed confidence of the public and investors in this crucial sector of the economy.”

Internal Market and Services Commissioner Michel Barnier said: “The international investigations underway into the manipulation of LIBOR have revealed yet another example of scandalous behaviour by the banks. I wanted to make sure that our legislative proposals on market abuse fully prohibit such outrages. That is why I have discussed this with the European Parliament and acted quickly to amend our proposals, to ensure that manipulation of benchmarks is clearly illegal and is subject to criminal sanctions in all countries.”

The Quant Hits Back

Robert Merton in a long video interview with Risk:

Defending quants from critics that have sought to blame them for the financial crisis, Merton says: “Some have said ‘We’ve got to get the quants out and put in ‘sensible’ people’. If one had to point to errors, it’s much more likely you had people who were not well enough trained, who don’t understand all the intricacies of the models – and their limits – and who don’t understand the instruments they are overseeing or working with.”

ISDA Protocol Approach

(1) to the Eurocrisis:

The ISDA Illegality/Force Majeure Protocol (the “Protocol”) offers market participants an efficient way to amend their 1992 ISDA Master Agreements with the more sophisticated Illegality and Force Majeure provisions of the 2002 ISDA Master Agreement helping them to better address any issues that might arise if a Eurozone member state exited the Eurozone and imposed capital controls, potentially making it illegal for parties in that country to make Euro-denominated payments.

(2) to Dodd-Frank:

In order to facilitate implementation of Dodd-Frank rulemakings, ISDA is launching a series of Protocols starting with the ISDA August 2012 D-F Protocol.

“There was the glamour of it. You know, the money, the girls, rock and roll without the guitars”

Dutch journalist and anthropologist and Guardian banking blogger Joris Luyendijk speaks to a derivatives trader.

“Why trading? I read maths in university, and I love the beauty of it. Success in trading is binary. In areas like history, geography or languages, grey is the most obvious shade. Trading, at its core, is black and white. I have generated value today, or I haven’t.

“Why trading? There was the glamour of it. You know, the money, the girls, rock and roll without the guitars. Another thing is, in trading you get to define yourself from an early age. You come in at 22 and you can prove yourself right away. I know guys making £1m a year at 25. This doesn’t happen a lot, but it does happen and that’s such a contrast with other jobs. As you know, investment banking breaks down into financial markets, where I work, and advisory, such as mergers & acquisitions. I could never be in M&A. A friend of mine works there. He was told in the first year he couldn’t leave the M25 [London ring road], ever. He had to stay within a radius where he could be in the office within an hour.

Joris’ blog post Derivatives trader: ‘The trouble is, regulators are idiots’ is here

Race to the BBBottom?

RISK reports on an important change to the SwapClear Rulebook:

Clearer will no longer boot out member firms when they drop below BBB threshold. Downgrades planned by Moody’s Investors Service could have left Morgan Stanley a notch away from expulsion

LCH.Clearnet’s SwapClear service has scrapped rules that base margin multipliers – and the mechanism by which clearing members are kicked out of the clearing house – on external credit ratings. With banks facing sweeping downgrades, the overhaul removes a potentially explosive source of pro-cyclicality from the system.

See also LCH.Clearnet’s Submission Regarding Amendments to LCH.Clearnet Limited’s Rules and Regulations to Reflect Changes to Comply with Incoming CFTC Regulations.

Yes!

After long deliberations the Asia Ex-Japan Credit Derivatives Determinations Committee gave an affirmative answer to the question:

Has a Bankruptcy Credit Event occurred with respect to Sino-Forest Corporation?

There will be an auction - but note that Sino-Forest is not among the DTCC Top 1000 names.