ESMA provides clearing exemption for NDFs (for now)


Back in October 14, European Securities and Markets Authority (ESMA) published a consultation paper on the mandatory clearing of swaps and Non-Deliverable Forwards (NDFs). At the time it was thought the publication was significant, coming a week before the Global Markets Advisory Committee (GMAC) of the CFTC, was to hold a public meeting to discuss whether a clearing mandate is appropriate for NDF’s, with a particular focus on how such a mandate would impact foreign exchange contracts. It was felt that the timing could signify a convergence between Europe and US on NDF clearing mandates.

However, on the basis of feedback received to ten key questions, ESMA has decided to not propose a clearing obligation on the NDF classes at this stage. ESMA believes that more time is needed to appropriately address the main concerns raised during the consultation, although there is still a possibility to propose a clearing obligation at a later point in time in order to take into account further market developments.

Below is a summary of the questions and some of the key responses from the report:

1) Clearing Obligation procedure
2) Structure of the NDF classes: Participants felt that the definition of what constitutes an NDF (currency pair, settlement currency, settlement type and maturity) was not broad enough, and that the criteria should also consider the documentation under which the contract was concluded. Specifically it was felt that only contracts which are traded under non-modified EMTA templates should be subject to the clearing obligation. This would ensure that only standardised classes were considered for clearing.
3) NDF classes proposed for the clearing obligation: Reservations towards mandatory clearing for NDF (or at least mandatory clearing under the proposed time frame) for two main reasons: a) The clearing offer for this asset class is still in its infancy and b) Lack of international convergence
4)  Maximum maturity of the NDF contracts
5)  Criteria for the determination of the dates
6) Categories of counterparties
7) Dates of application of the clearing obligation
8)  Frontloading and the minimum remaining maturity
9) Other comments
10) Cost Benefit Analysis

Full consultation feedback Statement paper here

Who say’s MiFID can’t make you smile!


Please forgive this blatant re-posting, but it will bring a rare smile to all those struggling with regulatory matters!

Just what’s needed to get you into the festive MiFID spirit, curtsey of this clever little ditty from the people at RegTech’s blog….

Xmas

♫ MiFID II is Coming To Town … ♫

You better know deals

You better not bribe

Better not launder

ESMA’s telling you why

MiFID II is coming to town

They‘re checking reports

And transparency

ESMA’s regulating

Intermediaries

MiFID II is coming to town

They see your algorithms

They know your HFTs

They know if you’ve been market making

So follow the new rules, please

You better report

You better not lie

You better record

ESMA’s telling you why

MiFID II is coming to town

MiFID II is coming …

MiFID II is coming …

MiFID II is coming …

MiFID II is coming to town

Regulators hit five leading banks with FX manipulation fines of over $3bln


The US (CFTC), UK (Financial Conduct Authority) and Swiss (Finma) regulators delivered a concerted and coordinated attack on the manipulations that have dogged the FX market for too long. The three regulators have hit five top global FX banks with fines totally over $3bln, but there is certainly more to come.

The banks: Citi, HSBC, JPMorgan, RBS and UBS  (Barclays are negotiating their own settlement with regulators), are all accused of manipulating the FX benchmark fixings, front running client orders and collusion. The authorities have also released what amount to damning transcripts from private FX chat rooms that clearly show that traders at these banks were colluding and front running client orders.

CFTC has released transcripts from the private FX chat rooms used by the traders, whilst the UK FCA provides similar examples of manipulation including a number of videos with graphics explaining what went on in the chat rooms ahead of the fixings, below is a visual from the video Continue reading

Are FICC markets ‘effective and fair’?


The Fair and Effective Markets Review (FEMR) has today published a consultation document (available on the Bank of England website), on what needs to be done to reinforce confidence in the fairness and effectiveness of the Fixed Income, Currency and Commodities (FICC) markets.

The Review was established by the Chancellor in June 2014, to conduct a comprehensive and forward-looking assessment of the way wholesale financial markets operate, to help to restore trust in those markets in the wake of a number of recent high-profile abuses, and to influence the international debate on trading practices.

To have lasting impact, the Review intends to Continue reading

24 European Banks fail ‘Stress Tests’ – 9 of them Italian!


The European Banking Authority (EBA), has released the results of ‘Stress Tests’ on 123 banking entities in Europe. The tests were designed to test the resilience of banks to adverse economic conditions.

The stress tests are based on common macroeconomic scenarios and a consistent methodology and unparalleled transparency into banks’ balance sheets and the potential impact of severe but plausible shocks on them.

The impact of the stress test is assessed in terms of the CRD IV Common Equity Tier 1 ratio for which a 5.5% and 8.0% rate are defined for the adverse and the baseline scenario respectively.

Some 24 banks (20%) failed the tests, of which 9 were Italian.

Here is a list of failed banks:

Banks that failed Stress Tests

 Shortfall for individual banks 2016 under the adverse scenario, capital raised or converted in 2014 and net shortfall (EUR BN) 

Full report available here, and individual bank stress test results and interactive visual display tools here.

Are Europe and US moving closer to NDF clearing mandates?


Could clearing mandate for NDFs be closer that we think?

Europe has tended to lag the US by about 18 months in implementing regulatory reforms in general, and trading and clearing mandates in particular.

So, the timing this week of a new consultation paper by The European Securities and Markets Authority (ESMA) on mandatory clearing of swaps and Non-Deliverable Forwards (NDFs) is potentially significant, as it could suggest a more rapid convergence between Europe and US on NDF clearing mandates.

The reason for this is that the paper has been published barely a week before Continue reading

Fixing the Fix – final report from FSB


The Swiss based Financial Stability Board (FSB), has today published their final report and recommendations for Foreign Exchange Benchmarks, which follows an initial consultative report published in July.

The report sets out a number of recommendations for reform in the FX markets and in the benchmark rates that have been identified as pre-eminent by market participants – in particular, the WM/Reuters (WMR) 4pm London fix produced by the WM Company. These recommendations fall into the following broad categories:

  • the calculation methodology of the WMR benchmark rates;
  • recommendations from a review by the International Organization of Securities Commissions (IOSCO) of the WM fixes – this review is included in the report published today, and is also being published separately by IOSCO;
  • the publication of reference rates by central banks;
  • market infrastructure in relation to the execution of fix trades; and
  • the behavior of market participants around the time of the major FX benchmarks (primarily the WMR 4pm London fix).

Summary of recommendations Continue reading

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