Derivalert's Top 10 News Stories of the Year: 2015
DerivAlert.org celebrated its fifth anniversary this year, a milestone that we’re proud to have reached. The newsletter was conceived to help bring some direction to the enormous amount of OTC derivatives reform news that was coming from all corners right around the time that Dodd-Frank was being implemented. Once the rulebooks were written, and the laws were passed the assumption was that the need for a compass to guide market participants through the new derivatives landscape would eventually fade away. It hasn’t.
As of this writing, the European Securities and Markets Authority (ESMA) has asked for a one-year delay in implementing the Markets in Financial Instruments Directive (MiFID II), which would push the deadline for Europe’s major OTC derivatives trading regulations out to 2018. In the U.S., the Commodity Futures Trading Commission (CFTC) has proposed brand new rules regulating the use of derivatives in mutual funds and exchange traded funds (ETFs). The agency also continues to juggle continued challenges concerning cross-border recognition of trading rules and continued no-action relief in implementing rules for package trades.
Amidst all this, DerivAlert has continued to grow its audience over the last five years: 2015 was our biggest year to-date in terms of total readership, number of news stories and commentaries posted and engagement with our social channels.
So, what were the biggest stories that kept all of you coming back for more over the course of the year? Here they are in descending order, as chosen by you, the DerivAlert reader, our top ten news stories of 2015:
10) Are Central Counterparties the Next Systemic Threat?
October 14, 2015 (American Banker) – Since the Group of 20 nations agreed in 2009 to route most over-the-counter derivatives through central counterparties (CCPs) regulators have been increasingly concerned that those centers could pose a catastrophic risk to financial stability if they fail. But a years-long standoff between regulators in the U.S. and Europe over how to regulate the swaps market is also stalling initiatives to shore up CCPs and to keep the international swaps market afloat. The stalemate is making the situation worse, especially considering that an enormous proportion of the entire global swaps market flows through just a handful of CCPs.
9) Hidden Price Pressures Grow in Euro Swap Markets
September 8, 2015 (Risk) -- Users of euro interest rate swaps should expect bid/offer spreads to widen, dealers are warning – a consequence of shrinking liquidity in the markets banks use to hedge, such as the Bund future. Fierce competition and a drive to internalize more flow has shielded clients so far. Clients appear to be getting an increasingly good deal in the euro interest rate swap market, as liquidity drains from the products traditionally used by dealers to hedge themselves – a phenomenon that is driving up risk and cost for the sell side, but has so far hardly touched the bid/offer spreads charged to customers.
8) U.S. Fund Managers Brace for SEC Proposal on Derivatives
December 11, 2015 (Reuters) -- A potential move by the U.S. Securities and Exchange Commission (SEC) to broaden regulation of derivatives use has industry officials worried it could hamper the ability of exchange-traded funds and mutual funds to amp up returns. The SEC put the derivatives question on the agenda for its meeting on December 11, noting only that it would consider a proposed rule governing how funds use derivatives.
7) Lackluster CLOB Participation Needs Trading Incentives
March 25, 2015 (GlobalCapital) -- Active trading on central limit order books (CLOBs) needs larger liquidity providers and better incentives for more dealers and buyside firms to actively participate, say market participants. While the issues preventing adequate liquidity in CLOB trading platforms on swaps execution facilities (SEFs) are clear, determining how market participants will navigate the requirements to migrate away from request for quote (RFQ) and voice broking systems continues to elude both buy-side and sell-side players.
6) SEFs: The Road Ahead
March 17, 2015 (Markets Media) – For swap execution facilities (SEFs), volumes are expected to continue trending higher, but there remain some question marks pertaining to the framework of the business as set forth by the U.S. Commodity Futures Trading Commission. As participants and observers of the SEF space await a clearing of the regulatory smoke, SEFs themselves are moving ahead with initiatives to attract order flow.
5) U.S. Swap Dealers Warm to Dodd-Frank – ISDA
November 24, 2015 (FOW) -- Electronic trading and clearing have become the new norm for the U.S. credit default and interest rate swap markets as the Dodd-Frank regulatory reforms take hold, according to data published by industry body the International Swaps and Derivatives Association (ISDA). ISDA said the proportion of interest rate swaps traded electronically increased in the third quarter to almost 60% of the market by notional volume.
4) CFTC May Need to ‘Step In’ to End MAT Drought
April 22, 2015 (Risk) – The CFTC may need to take “a greater role” in extending the list of swaps required to trade on new platforms, one of its commissioner’s top staffers has warned – a response to a 13-month drought in requests from the SEFs themselves. The comments about what is known as the made-available-to-trade (MAT) process came during a panel discussion at the ISDA annual meeting in Montreal.
3) Wall Street Poised for Swaps Collateral Victory at CFTC
November 25, 2015 (Bloomberg Business) -- Wall Street banks may be close to winning one of their biggest lobbying fights this year by beating back U.S. requirements that would have led to billions of dollars of additional costs on derivatives trading. The CFTC is considering a parallel version of a rule approved by banking regulators in October that governs how much collateral must be posted between divisions of the same bank, according to people with knowledge of the matter who asked not be identified because the rule isn’t public yet. The banking regulators softened the requirements from an earlier proposal leaving Wall Street looking to the CFTC to endorse that move.
2) SEF Leaders Say Global Harmonization of Swaps Regulations is Pipe Dream
October 27, 2015 (Waters Technology) -- Implementation of MiFID II is roughly 15 months away, and with it comes a burning question: Will the U.S. and Europe be able to come to a mutual recognition of regulations for the swaps market? Douglas Friedman, general counsel for Tradeweb Markets, said the problem originates from assumptions by many that because the U.S. started earlier than Europe on swaps trading reform, European regulations would largely mirror what the U.S. did.
1) ESMA Makes Case for MiFID II Delay
November 18, 2015 (Financial News) -- Europe's top markets watchdog has outlined why it believes a delay to the reform of Europe's trading rulebook is necessary - and suggested a number of ways to postpone the reforms. The delay was originally suggested at a hearing in the European Parliament on November 10 when Steven Maijoor, chairman of ESMA, raised concerns about whether there was enough time to implement the revisions of MiFID II by January 3, 2017, as originally planned.