REGIS-TR, the European Trade Repository owned by Clearstream (Deutsche Börse Group) and Iberclear (BME), and National Settlement Depository (NSD), the Russian Central Securities Depository, have signed a Memorandum of Understanding (MOU) to intensify their cooperation on the mutual exchange of information. The MOU addresses the development of communication channels and a cooperative relationship for the purpose of supporting and advancing the development of both organisations’ repository systems.
The members of CCP12 – the Global Association of Central Counterparties elected the new Chair, two Vice-Chairs and Ordinary Executive Committee Members at its Annual General Meeting (AGM) on May, 8 th 2013. The world’s major providers of central counterparty (CCP) services held their 2013 AGM in Busan, South Korea, hosted by KRX (The Korea Exchange).
ASX announces that it plans to extend its new OTC Derivatives Clearing Service to deliver a client clearing solution. This aims to provide important new risk management controls to Australian investors and asset managers, giving them the choice to protect their individual positions and collateral in the event of a significant default. This extension of ASX’s OTC Derivatives Clearing Service is scheduled for delivery by the end of 2013, subject to regulatory approval and customer readiness.
Abu Dhabi Securities Exchange (ADX) held a meeting with the custodian members to discuss the developments targeting the implementation of a new enhancement of Delivery Versus Payment (DvP) process which the Abu Dhabi exchange plans to put into operation from the trading date of May 5th, 2013.
* Unique solution enables client assets to remain in safekeeping with Standard Chartered
* Clearstream manages all global collateral optimisation within its Global Liquidity Hub
* Secure service promotes efficient collateral consolidation
- New Central Counterparty solution further boosts post-trade efficiency
- Market participants benefit from optimised processes and new software
- Technology partnership with London Stock Exchange Group
Abu Dhabi Securities Exchange (ADX) announced that it is continuing the process of enhancing Delivery Versus Payment (DVP) model, which ADX launched in May of 2011, through applying Buyer Cash Compensation (BCC) settlement procedure. The new procedure, which will take effect in May 2013, means that a buying investor will be paid cash compensation in the unlikely event where securities are unavailable for delivery to the buying investor on settlement date.
Safcom, the clearing house for the JSE’s derivatives market, announced the promulgation of the rules enabling the establishment of a default fund intended to add another layer of investor protection in the exchange traded derivative market.
Moscow Exchange begins settlement of securities on the T+2 basis, bringing its procedures in line with international best practices. As with other recent reforms, the move makes trading on Russia"s main exchange more attractive to both international and Russian market participants.
Clearstream will launch its direct settlement link to the Russian market following the opening of a main account at the National Settlement Depository (NSD), the new Russian CSD, in February 2013. The move follows months of progress through technical, legal and regulatory steps in close cooperation with the NSD. The new direct link to the Russian CSD will complement Clearstream’s existing settlement services by further opening up access to the Russian capital markets via an efficient channel and offering a single access point, the Russian CSD. Leveraging its extensive post-trade infrastructure, Clearstream will offer a robust multi-channel access to the new Russian CSD via both its central securities depository (CSD) and its international central securities depository (ICSD).
ASX welcomes announcement by the Deputy Prime Minister and Treasurer, the Hon Wayne Swan, which retains the current market structure for clearing and settlement of cash equities, and requests ASX to put in place a Code of Practice for Clearing and Settlement of Cash Equities in Australia.
Clearstream and Belfius have agreed to develop exclusively a new collateral management activity for bilateral trades, focusing on over-the-counter (OTC) derivatives and aimed primarily at corporates and medium-sized banks. The service, which will leverage Belfius’ specialist experience, will be white-labelled by Clearstream and offered to its clients.
- The initial members of the Liquidity Alliance are ASX (Australia), Cetip (Brazil), Clearstream (Frankfurt/Luxembourg), Iberclear (Spain) and Strate (South Africa)
- The goal of the Liquidity Alliance is to exchange information, identify common needs and to extend global collateral solution
- Liquidity Alliance will be a dynamic forum and open to additional participants from all regions
IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, announced that ICE Clear Credit, the largest North American credit default swap (CDS) clearing house, has received regulatory approval to provide portfolio margining relief for buy-side clearing of CDS.
IntercontinentalExchange (NYSE: ICE), a leading operator of global markets and clearing houses, and NYSE Euronext (NYSE: NYX), the preeminent global equity, equity options and fixed income derivatives market operator, announced that, their wholly owned subsidiaries, ICE Clear Europe Limited and LIFFE Administration and Management have entered into a clearing services agreement pursuant to which ICE Clear Europe will provide clearing services to the London market of NYSE Liffe ("NYSE Liffe"). The clearing services agreement will allow NYSE Liffe to transition seamlessly from their current clearing arrangements.
NASDAQ OMX Nordic announced the clearing of SEK denominated interest rate swaps for end client trades in the Nordic market in February 2013. This will provide the entire market with a clearing solution for standardized SEK denominated interest rate swaps. Since November 2011 clearing has been available for the trades between participating members only, while NASDAQ OMX and the Nordic member community have negotiated the legal and technical framework for a successful introduction of interest rate swaps clearing for end client trades.
LCH.Clearnet Group (LCH.Clearnet), the leading international clearing house, announced it will extend its clearing business for OTC interest rate instruments to Australian banks, bringing the benefits of clearing competition to one of the world’s top 10 capital markets.
Interbolsa, a subsidiary of NYSE Euronext and the Central Securities Depository (CSD) for the Portuguese market, announced that it has become the CSD for Portuguese Treasury Bills. Interbolsa will be responsible for ensuring not only the registration and control of the Treasury Bills but also the settlement of transactions.
NYSE Liffe, the European derivatives business of NYSE Euronext, announced the expansion of Bclear, the Exchange’s trade confirmation, administration and clearing service, with the introduction of Fixed Income products. The new contracts available through Bclear will be Three Month Euro (Euribor) Futures, Three Month Sterling (Short Sterling) Futures and Long Gilt Futures. The new Bclear contracts will be available to NYSE Liffe members from 10 December 2012.
Clearstream has established a branch in Dublin to extend its post-trade offering in the area of investment funds to hedge funds. Clearstream Banking S.A., Dublin Branch, will extend the company’s investment funds business to alternative funds and allow Clearstream to service the entire range of funds: mutual funds, exchange-traded funds and hedge funds. The hedge fund investor services were set up following a steep increase in client demand for such investments and will over time be fully integrated into Clearstream’s fund processing environment. The new venture has already signed six pilot customers. Christian Westerholt, previously Head of Product Development in Clearstream’s Investment Fund Services area, will be the General Manager of the Dublin branch.
Eurex Clearing, Europe’s leading clearing house, announced that EurexOTC Clear for Interest Rate Swaps (IRS) successfully went live on 13 November 2012.
The launch was supported by Eurex Clearing’s cooperation banks Barclays, Citigroup Global Markets Ltd., Credit Suisse, Deutsche Bank and J.P. Morgan. In addition, Commerzbank, HSBC, Royal Bank of Scotland, UBS and Basler Kantonalbank joined the service for the production start. All ten members have successfully cleared their first transactions via EurexOTC Clear for IRS.
Clearstream is ready to take the necessary steps to open a direct account with National Settlement Depository (NSD), the new Russian central securities depository (CSD) in Moscow. The link signals a significant improvement in the way Clearstream’s customers will be able to access the market and follows yesterday’s announcement by Russia’s Federal Financial Markets Service (FFMS) that NSD has been granted CSD status. The creation of this new market entity forms a crucial part of the overall reconstruction of the securities market infrastructure in Russia. It should be able to deliver a substantial contribution to the government’s stated aim of developing Moscow as an international financial centre.
Eurex Clearing, one of the leading CCPs globally, announced that it will go live with Europe’s first central counterparty (CCP) service for the bilateral securities lending market on 22 November. In order to ensure a smooth and efficient market establishment, Eurex Clearing’s lending CCP will commence operations with an initial group of banks and asset classes; at the start, German and Swiss blue chip equities and Exchange Traded Funds (ETFs) will be available for pilot clients. This initial phase will allow clearing members to lay the necessary foundations for the alignment of their systems and processes and extensively test the infrastructure to access this innovative CCP offering.
Moscow Exchange Group is pleased to announce that the Russian financial markets regulator Federal Financial Markets Service has granted the Group's subsidiary National Settlement Depository (NSD) status as the country's Central Securities Depository (CSD). The establishment of a CSD is a landmark development in the Russian capital markets and will increase transparency in respect of securities ownership, improve efficiency, and give international investors easier access to Russian securities.
As of November 2012 KDPW (The National Depository for Securities, Poland) will launch a new service: trade repository. The introduction of KDPW’s trade repository service addresses the Regulation of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (EMIR) which introduces among others the obligation to report derivatives trade to trade repositories and sets out the rules for trade repositories.
Bursa Malaysia completes the final phase of its CDS Straight Through Processing (CDS-STP) initiative for its market participants. This phase complements the earlier initiatives under CDS-STP to provide CDS balances and intraday updates to shareholding positions in CDS accounts, introduced on 18 June 2012 and 13 August 2012.
The Hong Kong Monetary Authority (HKMA) and Clearstream jointly announced their cooperation in providing cross-border collateral management and liquidity services in Hong Kong. The HKMA and Clearstream plan to launch the services in the first quarter of 2013.
IntercontinentalExchange (NYSE: ICE), a leading operator of global regulated futures exchanges, clearing houses and over-the-counter (OTC) markets, announced that the CFTC has approved ICE Clear Europe's request to allow the clearing house and its clearing members to hold both U.S. energy futures and foreign energy futures in the 4d(a) account for U.S. customers. The 4d(a) Order allows ICE to continue offering portfolio margining offsets for its energy customers, but with enhanced account segregation benefits.
Bursa Malaysia has introduced the enhanced Central Matching Facility, an automated settlement system offering end-to-end electronic matching of trade and settlement details, between Trading Clearing Participants (stock broking companies) and Non-Trading Clearing Participants (custodian banks).
Euroclear UK & Ireland (EUI) has cut its investment fund order-routing fees for both high- and low-volume clients with immediate effect. The tariff for 10,000 or more orders per year has been cut by 9%, rising to a reduction of 33% for clients routing over 25,000 orders per year through the EMX Message System.
Euroclear is embarking on a mission to create the first fully open global market infrastructure to source and mobilise collateral across borders. Euroclear’s global“Collateral Highway” will help market participants move securities from wherever they are held to serve as collateral for access to central bank liquidity, secured transactions such as repos and securities loans, and margins for CCPs and bi-laterally cleared OTC derivative trades.
NYSE Euronext (NYX) confirmed that its London derivatives market, LIFFE Administration and Management (LIFFE) has now given formal notice of termination with respect to the services currently received from LCH.Clearnet Ltd under the Clearing Relationship Agreement to support NYSE Liffe Clearing, NYX’s London-based derivatives clearing service.
Bursa Malaysia introduced the CDS Straight-Through Processing (CDS-STP) facility for its market participants to better manage transactions performed by Central Depository System (CDS) account holders.
The SIX Board of Directors agreed to sign the ECB’s Framework Agreement concerning Europe’s envisaged centralized settlement platform. In signing the agreement, SIX, through SIX Securities Services, will become the first non-EU central securities depository to offer access to the TARGET2-Securities (T2S) platform.
EurexOTC Clear for Interest Rate Swaps will deliver efficient risk management and safety for dealer and client clearing/ Strong Client Asset Protection services in line with new EMIR requirements/ High capital efficiency through portfolio risk management and efficient collateral processes
LCH.Clearnet SA (LCH.Clearnet) announces the launch of its international CDSClear service, an extension to the established domestic French offering launched in March 2010. CDSClear now offers an innovative, multi-jurisdictional CDS clearing framework.
CME Group announced that on April 27 the company cleared its first customer FX Over-the-Counter Non Deliverable Forward (NDF) trade, further expanding the company's market leading OTC solution across multiple asset classes. The currency cleared was the Brazilian Real. The company also offers NDF clearing for the Chinese Renminbi Yuan, Philippine Peso, Malaysian Ringgit, Indian Rupee, Korean Won, Taiwan Dollar, Chilean Peso, Colombian Peso, Peruvian Sol, Russian Ruble and Indonesian Rupiah.
The Stock Exchange of Thailand (SET) announces that it has scheduled to launch Thai Depository Portal on May 1 for securities depository services of bonds and funds listed on SET. The system, as a communication channel for registrars through Thailand Securities Depository Co., Ltd. (TSD), helps increase security of information transmission, while reducing risks, and procedures.
Eurex Clearing and Pirum Systems sign Connectivity Agreement to facilitate access to Eurex Clearing’s Lending CCP/ Market participants will be able to leverage Pirum’s automation platform to transmit bilaterally negotiated transactions to Eurex Clearing
Singapore Exchange (SGX) said SGX AsiaClear has enhanced access to its clearing process with the linking of OTC broking systems to its OTC Trade Registration System.
LCH.Clearnet Group Limited ("LCH.Clearnet") notes the announcement by NYSE Euronext regarding its European clearing strategy. LCH.Clearnet confirms that it has held constructive preliminary discussions with NYSE Euronext regarding its current intentions with respect to the clearing arrangements of its cash equities and derivatives businesses.
NYSE Euronext outlined its European clearing strategy and implementation plan, detailing the steps that will be taken to leverage its NYSE Liffe derivatives clearing platform to consolidate all of its European derivatives into a single derivatives clearing house, and delivering significant operational and margin efficiencies for clients.
* Promoting the use of investment funds as collateral
* Use of investment funds could bring 700 billion of additional collateral to the market
* Clearstream selected for Hong Kong Exchanges and Clearing Limited’s Ecosystem Founding Member Program
* Clearstream plans to become preferred international post-trade services provider in Asia
The clearing arm of SIX Securities Services, SIX x-clear Ltd, todayannounced that its fully interoperable clearing and risk management services are now available on Turquoise. With this step, the highly recognized clearing house continues its rapid European expansion after becoming interoperable on BATS and Chi-X earlier this year.
LCH.Clearnet Limited (LCH.Clearnet) began clearing foreign exchange (FX). The service is supported by 14 major market participants who have been actively involved in its establishment. A number of additional participants are scheduled to begin clearing in the coming weeks.
LCH.Clearnet Limited (LCH.Clearnet), New York Portfolio Clearing LLC (NYPC), The Depository Trust & Clearing Corporation (DTCC) and NYSE Euronext (NYX) jointly announced that they have agreed to explore expanding the existing combined “one-pot” cross-margining arrangement to include interest rate swaps cleared by LCH.Clearnet.
CME Group, the world's leading and most diverse derivatives marketplace, and RIM Intelligence, Japan's foremost provider of energy price and information services, announced they have signed an agreement to develop clearing services for over-the-counter (OTC) risk management products used by the Japanese energy industry. The products will be listed and subject to the rules of NYMEX and cleared through CME ClearPort.
Canadian financial institutions are set to benefit from a new efficient and effective collateral management service planned for development by Clearstream and CDS Clearing and Depository Services Inc. (CDS). The two companies signed a letter of intent last week and will now move forward in exploring the creation of a new triparty collateral management service for Canada. The service would enable Canadian market participants to meet demands for collateral in the most cost effective and operationally efficient way possible: CDS, the Canadian central securities depository, would utilise Clearstream’s collateral management infrastructure and the Liquidity Hub GO service to allocate, optimise and substitute domestically held collateral on a fully automated basis and in real time.
Starting on 14th of March 2012, Depozitarul Central will provide its clients with turnaround capabilities. This service delivers substantial efficiencies to the market players by creating further opportunities for non-resident investors, with an easier access to Romanian financial instruments, including those which are subject to public offerings.
Eurex Repo, Eurex Clearing and Clearstream, all part of Deutsche Boerse Group, will introduce an extension of the integrated and innovative GC Pooling market for secured funding which will be made available for active GC Pooling participants (banks) to further strengthen their service scope towards corporate customers. Launch is scheduled for Q4 2012. The leading GC Pooling marketplace for secured interbank transactions will be enhanced to contribute to re-building trust between banks and their existing non-financial customers, e.g. corporates, asset managers and pension funds. The new market segment GC Pooling Select will be specifically designed for secured short-term cash investments from non-financial clients to banks to avoid the systemic risks of unsecured money market operations.
Clearstream and BNP Paribas Securities Services (BNP Paribas) have signed a letter of intent to intensify their cooperation on collateral management: BNP Paribas customers will be able to consolidate their collateral holdings, via Clearstream’s Global Liquidity Hub, to cover their global exposures from a single optimised collateral pool. Customers gain a double benefit: they will retain their asset portfolios within BNP Paribas’ proven and established custody network while Clearstream’s collateral management engine allocates, optimises and substitutes collateral on a fully automated basis across the books of BNP Paribas.
Bursa Malaysia Derivatives Berhad (BMD) has launched a new derivatives clearing and settlement system to provide faster and more efficient clearing and settlement services for its Clearing Participants.
IntercontinentalExchange (NYSE: ICE) announced the launch of 7 new cleared OTC contracts for natural gas liquids, North American natural gas, North American power, crude and refined petroleum products.
CME Group announced it has expanded its centrally cleared, over-the-counter (OTC) agricultural swap offering through the introduction of eight new grain and oilseed swaps. The new swaps will be available for clearing on February 13, pending regulatory review. Among the offering are five new bullet swaps and three additional calendar swaps, which are listed with, and subject to, the rules and regulations of CBOT.
On February 13, 2012, MICEX-RTS Stock Exchange will launch additional features for submitting and executing trades during the post-trading auction held in the Main Market sector.
IntercontinentalExchange (NYSE: ICE) announced that ICE Clear Credit now offers portfolio margining benefits for clearing participants' proprietary positions, allowing for more efficient collateralization of opposite positions in index and correlated single-name credit default swap (CDS) instruments.
The industry project called Market Model Typology (MMT) has announced the availability of the official MMT 1.0 mapping release. This significant milestone provides a strategic bridge to implementing European equity post-trade standards in order to enhance market transparency. MMT provides a translation between legacy trade reporting flags to a newly defined single market standard.
The revised Clearing Fund of TWSE and GTSM (Gretai Securities Market) is effective from Jan 1 of 2012. The required contribution of securities firms is cut to NT$3.4 bn. from NT$5 bn. on the TWSE, and to NT1.6 bn. from NT$2.4 bn. on the GTSM.
The clearing arm of SIX Securities Services, SIX x-clear Ltd, has signed a Memorandum of Understanding (MoU) with the Prague Stock Exchange (PSE) to become the international clearing house for the Czech market.
The Depository Trust & Clearing Corporation (DTCC) announced that the Mortgage-Backed Securities Division (MBSD) of its Fixed Income Clearing Corporation (FICC) subsidiary has filed an application with the U.S. Securities and Exchange Commission to provide central counterparty (CCP) and pool netting services for trades in U.S. mortgage-backed securities. This initiative is designed to reduce the risks and costs associated with trading in the $100 trillion-a-year market.
CME Group announced that it will include offshore Chinese Renminbi (CNH) in the range of instruments to meet performance bond requirements on all exchange futures products cleared through CME Clearing, effective January 2012. The company also announced with HSBC Global Banking and Markets that HSBC Hong Kong will serve as CME's first Far East clearing custodian in Asia.
LCH.Clearnet Limited (LCH.Clearnet) announced that it has gone live with significant enhancements to its SwapClear service. Following extensive consultation with the buy side and Futures Commission Merchants, SwapClear now accepts a broader range of collateral for initial margin and offers increased connectivity and variable notional swaps. In addition, the platform offers risk-free compression and flexible trade submission and is now directly accessible via TradeWeb and Bloomberg (VCON and Electronic Trading) through SwapClear’s ClearLink API in addition to MarkitSERV.
On December 14, 2011 futures and options contracts will be settled through the unified settlement technology implemented on FORTS and RTS Standard.
Singapore Exchange’s (SGX) AsiaClear service will clear more varieties of over-the-counter coal and naphtha swaps from next month.
NASDAQ OMXlaunches Genium Risk, a new risk management platform for its Nordic clearing house, NASDAQ OMX Clearing. Genium Risk, a state of the art risk system, provides the clearing house with a real-time risk management solution, including new tools for improved risk monitoring and handling of incidents for derivatives clearing. In addition, capital efficient risk models for fixed income and equities will optimize the use of member collaterals.
BM&FBOVESPA signed an exclusive contract with Swedish technology company Cinnober on October 21, 2011 for the perpetual licensing of TRADExpress RealTime Clearing. This is a state-of-the-art, flexible multimarket clearing system with real time data processing and risk calculation capacities.
BM&FBOVESPA signed an exclusive contract with Swedish technology company Cinnober on October 21, 2011 for the perpetual licensing of TRADExpress RealTime Clearing. This is a state-of-the-art, flexible multimarket clearing system with real time data processing and risk calculation capacities.
IntercontinentalExchange (NYSE: ICE) announced that it has applied to register its ICE Trade Vault service as a swap data repository (SDR) with the Commodity Futures Trading Commission (CFTC).
The Depository Trust & Clearing Corporation (DTCC) announced that it had filed a registration application with the U.S. Commodity Futures Trading Commission (CFTC) to operate a swaps data repository (SDR), DTCC Data Repository (U.S.) LLC, across multiple OTC derivatives asset classes.
CME Group, the world's leading and most diverse derivatives marketplace, announced that it has begun clearing Euro-denominated interest rate swaps (IRS). The company also announced that it set a new daily record for IRS clearing on October 18, 2011, with $8 billion in U. S. customer volume cleared.
SWIFT, the financial messaging provider for more than 9,700 financial institutions and corporations in 209 countries, has announced that the Polish central counterparty (CCP) KDPW_CCP will be able to use ISO standardised messaging over SWIFT to communicate with its clearing participants.
Singapore Exchange (SGX) successfully launched its clearing service for OTC traded Asian Foreign Exchange (FX) Forwards (non-deliverable) with Deutsche Bank, DBS Bank and OCBC Bank clearing their first Asian FX Forwards with the Exchange.
LCH.Clearnet Ltd (LCH.Clearnet) is to extend the range of eligible collateral types to include gold bullion by the end of October 2011, subject to final regulatory approval.
NASDAQ OMX Nordic, part of The NASDAQ OMX Group Inc. (NASDAQ:NDAQ), announces its intention to introduce competitive Central Counterparty (CCP) clearing by end of April 2012* in cooperation with EMCF, EuroCCP and SIX x-clear. The April 2012 timeline was established in consultation with NASDAQ OMX’s trading members. Interoperability will allow members at NASDAQ OMX Nordic exchanges to choose between multiple clearing houses to clear and settle their trades.
CJSC JSCB National Clearing Centre (NCC), a subsidiary of CJSC MICEX, has been admitted to the Global Association of Central Counterparties – CCP12.
The Depository Trust & Clearing Corporation (DTCC) and Clearstream announced they would establish a strategic partnership to support the bilateral loan (also known as credit claims) and syndicated loan markets. Clearstream will leverage DTCC’s Loan/SERV Reconciliation Service and begin to offer it in the first half of 2012. They will also develop bilateral loan services, which will be built on DTCC’s existing Loan/SERV platform and integrated with Clearstream’s collateral management platform.
Monte Titoli, the leading European Central Securities Depositary (CSD) and provider of financial settlement services, announced that it has established a new settlement link with Euroclear (formerly CREST) in the UK and Ireland. The link will allow participants to further harmonise settlement of their cross-border trading activity within Europe.
ASX Group (ASX) has signed a letter of intent with Clearstream, part of the Deutsche Borse Group, to develop a new collateral management service for the Australian market. ASX will provide the service using Clearstream’s proven global technology.
In a letter to the FSB and other policy organizations, WFE encouraged global standard setting bodies to demonstrate continued support for the G20 commitments to bring greater transparency and central clearing to derivative markets by ensuring that the costs of ETD markets are not unnecessarily increased.
After more than a decade of hesitation, the EU is now finally moving on to put in place a proper regulatory architecture for clearing and settlement. Following the agreement on EMIR, the EU Commission has proposed harmonized rules for CSD’s, while the ECB is moving on with its plans for a central euro-zone settlement entity. After the unfortunate bypass of the 2006 Code of Conduct, the EU will now have rules to ensure cross border provision of services, (interoperability) and competition between clearing and settlement entities in the EU. This will bring sea change in the sector, and could lead to further concentration in the sector to respond to tighter margins, as we have seen in the area of trading platforms.
The business of financial intermediation – bringing capital to new endeavours, securing a well-regulated set of investment choices for savers, and enabling risks to be laid off or assumed – has been one of the world’s great growth industries. Regulated securities and futures’ exchanges have stood at the apex of the burgeoning business of financial intermediation. Were we not so used to it, we would be startled that a single type of business could be so prominent that its street address would serve as short-hand for the entire economy, and an index of its prices a key barometer of economic outlook. Wall Street, Threadneedle Street, Hang Sen, Sensex, CAC40: these and other such names have become accepted barometers for economic wellbeing or otherwise.
As US and European policymakers push ahead to complete drafting new rules to govern global securities market, the need for transparency and risk mitigation in global over-the-counter derivatives markets remains a critical focus. Although much of their initial focus was on requiring OTC derivative trades to be cleared through a central counterparty (CCP), policymakers and regulators are now examining other steps that are equally critical to helping mitigate risk, enhance transparency and ensure that regulators have access to crucial market data. One of the most effective proposals under consideration is to require the reporting of all OTC derivatives trades to a central repository where all underlying position data (and possibly transaction data) can be held, with unfettered access provided to all regulators globally. This paper explores the value of such a premise—particularly in terms of the powerful tool that a global repository provides for regulators—as well as the severe data fragmentation problems that are likely to hinder effective regulation if the result of policy decisions on both sides of the Atlantic is a reporting system that is not unified.
With the passage of legislation in the United States to transform Over-the-Counter (OTC) derivatives market, and similar measures in the works in Europe, the leaders of exchange industry sought the most up-to-date information on one of largest and most opaque parts of modern finance.
Reform of these non-regulated markets and products has been a priority for the G20 governments and regulators. They have been seen as a central cause and accelerator of the crisis that brought down financial institutions.
The global derivatives market is a main pillar of the international financial system and economy. As an indispensable tool for risk management and investment purposes, derivatives are used by more than 94 percent of the world’s largest companies.1) They contribute to improving operational, information, price, valuation and allocation efficiency, thus substantially increasing the efficiency of financial and commodity markets.2)
Derivatives help lower the cost of capital and enable firms to effectively invest and channel their resources. These factors are an important driver of economic growth.3) Europe – as the most important region in the global derivatives market – stands to benefit immensely from the positive impact of derivatives.4)
Derivatives are traded in one of two ways: either over-the-counter or on regulated markets, i.e. on exchanges. Exchange-traded derivatives are fully standardized whereas most OTC derivatives are customized contracts between two trading parties.
The OTC segment accounts for 90 percent of the market in terms of notional amount outstanding.
Here, the market volume is split equally between bilateral trading among market participants and multilateral trading, i.e. trading across a number of different market participants on organized marketplaces) such as interdealer-brokers or electronic crossing networks.
Legislators and regulators in Washington, D.C. are working to make changes to the way banks and markets are governed in the U.S. and how those rules are to be enforced. While this is true around the world, this article will focus on the U.S.
While the financial crisis caused massive fallout on the bilaterally traded over-the-counter (OTC) side, exchange-traded and centrally cleared derivatives escaped with barely a scratch. Since then, growing clearing volumes point to centralised clearing becoming one of the major growth areas of the financial market. The crisis exposed inefficiencies as large segments of the market were neither standardised nor automated – despite the speed of global trading activity and the increased complexity of transactions. This was not seen to be a problem in a bull market but, when the credit crisis rapidly unfolded, users of bilateral transactions were scrambling to pick up the pieces. OTC market participants and regulators alike have realized that clearing houses offering central counterparty services (CCP) provide practical solutions that the market desperately needs: transparency, neutrality and efficiency enabling the mitigation of counterparty risk.
The financial crisis brought over-the-counter (OTC) derivatives to the forefront of regulatory attention. The default of Lehman Brothers, the near collapse of Bear Stearns and the bailout of AIG highlighted to all involved the significant role played by OTC products. Since then, regulators on both sides of the Atlantic have begun to look at how the derivatives market, or “weapons of mass destruction” as they have fashionably come to be known, can made safer. Although derivatives have been around for centuries, from the most basic contracts for the transfer of risk, the innovation within the sector has been fast and finding a solution to producing effective regulation from a policy-making point of view has not been easy.
WFE agrees that a global review of market infrastructure institutions is important stock-taking in light of financial market events and operating conditions post-2007. The goal of creating a single set of overarching standards is valuable for WFE and its members, as with International Financial Reporting Standards, the OECD’s Principles of Corporate Governance, and IOSCO’s Principles of Regulation. The member exchanges have voted measures of public endorsement for them in years past, precisely because they promote a sounder global financial system. In this case, the CPSS-IOSCO idea of updating and synthesizing pre-existing work also makes good sense to move ahead in this direction.
(11 October 2010, Paris) Chairmen and Chief Executives from more than 68 of the world’s leading exchanges gathered in Paris this week for the 50th General Assembly and Annual Meeting of the World Federation of Exchanges (WFE
WFE Annual Meeting, Paris 2010 - Panel 2 Exchanges, clearers and OTC derivatives summary