European Market Liquidity Conference – thoughts and comments


Last week I attended the Association for Financial Markets in Europe (AFME) 9th annual European Market Liquidity Conference.

As always with AFME, there had some thoughtful speakers and topical panel discussions, as well as providing good forum for networking opportunities (including providing for the conference iPad’s pre-loaded with delegate names allowing you to reach out to them and make contact).

This year’s agenda focused on the new emerging market structures

  • Liquidity in the new regulated market – the changing market structure
  • Keynote address -Verena Ross, Exec Dir, ESMA
  • Foreign Exchange:
    The renminbi and other Asian currencies
    Impact of regulation on development of the FX market place
  • Fixed Income:
    Development of exchange capabilities
    Liquidity issue, what liquidity issue?
  • Funding European economic growth: the obstacles and opportunities

Below are my notes and some comments from the sessions that I attended: Continue reading

Single-Dealer Platforms and SEFs


This week saw the introduction of mandatory execution on new SEF platforms for certain standardised interest rate swaps. Such swaps will no longer be executed bilaterally between banks and their clients, but rather must be executed anonymously on SEFs.

The move to SEF trading has however been tentative, with many buy-side firms holding back, nonetheless by midweek some 74% of the 372 IRS trades were being executed on SEFs, according to data from Clarus.  Although there are 23 newly registered SEFs , the majority of business so far has tended to flow through to the incumbent inter-dealer platform SEFs.

But what about single-dealer platforms (SDP), how are banks managing the migration to SEF trading? Continue reading

Final Volcker Rules on Proprietary Trading


Five US agencies have released the final version of section 619 of the Dodd-Frank Act that governs proprietary trading, otherwise known as the “Volcker Rule”.

The five agencies being: Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Securities and Exchange Commission.

The rules would generally prohibit banks from:

  • Engaging in short term proprietary trading of securities, derivatives, commodity futures and options on these instruments for their own account
  • Owning, sponsoring, or having certain relationships with hedge funds or private equity funds, referred to as ‘covered funds.’

The rules provide exemptions for certain activities which include; market making, underwriting, hedging, trading in certain government bonds, and organising and offering a hedge fund or private equity fund.

The rules however, limit these exemptions if they involve Continue reading

What next after SEFs?


Just finished listing to an interesting webcast on Global OTC market reforms, and where next after the US and SEFs?

Celent analyst Anshuman Jaswal, gave overview of market, SEF volumes to date, and possible differences in regulatory treatment and approach in Europe and Asia.

Some key points form slide deck and a couple of slides below.

SEF and OTFs are critical components in evolution of the market from OTC non-standardised bilaterally cleared to standardised electronically traded and centrally cleared swaps.

SEF-OTF shift to standardised swaps

Celent slide on shift to standardised swaps

In terms of SEF volumes Continue reading

Main SEFs in violation of equal access rules


Speaking at SEFCon IV conference in NY this week, Gary Gensler, Chairman of the CFTC said that Bloomberg, TradeWeb and MarketAxess are failing to provide impartial access as required under SEF rules.

The three main platforms, are giving the banks too much control over who their customers buy and sell with, in an attempt to preserve the existing dealer-client structure, and that they need to come inline with the CFTC equal access rules.

“What they are doing right now is a violation of Dodd-Frank and our rules,” he said at an event in New York. “They need to come into compliance,” he said. The limits at Tradeweb, MarketAxess and Bloomberg LP give an advantage to the dealers who created the swaps market in the 1980s, Gensler said. “They’re trying to keep exclusive to the dealers.”

More here on Bloomberg and Risk.Net and of course from Kevinonthestreet

Separately, Continue reading

Top SEF


Whilst Javelin and TrueEX as ‘new kids on the block’, may have been the first to register their made available to trade (MAT) products, it’s clear that SEF volumes are for now remaining on the established platforms which are already widely used by market participants.

According to data from Clarus the top SEFs by volume for each product class last week were:

  • CREDIT:  Bloomberg continues to post the most impressive scores in this asset class, consistently accounting for 70-80% of the daily volumes and 79% for the week overall.  GFI is the strongest IDB.
  • FX:  ICAP has the largest FX numbers.  The other 4 IDB’s join Reuters & 360T for a close battle between 2nd through 7th place.
  • IRD:  ICAP and Tullet take turns in the lead, with BGC in another photo-finish for 3rd.  The strength of ICAP’s and Tullet’s numbers appear to hinge on the weekly FRA reset volumes (RESET vs TP Match, respectively).

Whilst, Ben Macdonald, Bloomberg’s Head of Product and President of Bloomberg’s SEF announced that:

“In the first month of SEF trading, more than $280 billion in cross asset volume has been executed on our SEF and over 220 global firms. We will continue to work closely with our clients, who have used our trading platforms for years, to help them transition to today’s new regulatory environment.” more

Full Clarus report on last weeks SEF volumes is here.

CFTC extends No-Action letter for FX Swaps


Last Friday the CFTC issued a ‘no action letter’ extending until 29th November the ‘time-limited’ relief from certain Swap Data Reporting Requirements for FX Swaps, the products in focus being NDFs and FX Options.

The extension comes on the back of representations, including a very compelling letter from James Kemp, MD of The Global Foreign Exchange Division, setting out the reasons for requesting the extension. Reading the arguments, you can see how ill prepared the majority of SEFs are to assume their obligations, and why market participants are reluctant to migrate trading onto SEFs.

According to the letter:

Key risks which have materialized for the NDF and Options markets since October 2nd including:

  • Reduced Legal Certainty for FX Trades Executed on SEFs.

In contrast to the practices developed and implemented by market participants over the past fifteen years to provide legal certainty Continue reading

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