New investment banking models: ‘capital-lite’, ‘agency’ and ‘client-clearing’


Regulation is driving change in capital market structure, and as highlighted in the future of investment banking, banks continue to move towards a ‘capital-lite’ business model, as they seek to ‘optimise’ use of and return on capital.

The introduction of mandatory trading and clearing for standardised swaps (SEFs in US and OTF and MTFs in Europe) has resulted in higher capital charges for OTC bilateral trades, and reduced the appetite of banks to warehouse and hold inventory which is moving more banks towards a ‘capital lite’ model.

This is the backdrop to the announcement that JP Morgan the setting up a 150 strong fixed income agency execution desk called JP Morgan Execution Services (JPMES), to run alongside its principal trading operations.

At first sight, it looks as if JP Morgan is simply hedging its bets and backing both agency and principal business models. However,
Continue reading

How many SEFs will the market support?


There is a great post by Amir Khwaja of Clarus Financial over on Tabb Forum. Amir looks at the current SEF volumes and asks some questions about how many SEFs can the market support.

Continue reading

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

CFTC Approves Javelin’s MAT submissions – whilst O’Malia calls the rules ‘flawed’!


The CFTC has just approved Javelin’s “self certified” list of Made Available to Trade (MAT) interest rate swap contracts. This means that from 15th February, in 30 days time, these products will be mandated to trade on SEFs or DCMs, and nowhere else (see below for full list of swaps).

However, it appears that Commissioner Scott D. O’Malia has concerns about the legality of the determination, as he has just released the following statement on the Made Available-to-Trade Determination. As we say, you really couldn’t make this stuff up!

It is hard to imagine a federal agency regulatory process that is more flawed than the Made Available-to-Trade (“MAT”) determination. The Commission staff has certified all interest rate benchmarks and related packaged transactions for mandatory trading on swap execution facilities (“SEFs”) or designated contract markets (“DCMs”), while at the same time, stated that it will consider some future action for all packaged transactions. And to complicate things further, the Commission has been excluded from a major regulatory decision that significantly reshapes current market infrastructure.

It gets worse, as he then goes on to say that:

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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

CFTC issues temporary relief non US based Swap Dealers


The CFTC has issued temporary no action relief until 14 Jan 2014 for Certain Transaction-Level Requirements (see below for full list) for Non-U.S. Swap Dealers.

This relief comes on the back of concerns raised regarding compliance with certain Transaction Level Requirements by overseas based Swaps Dealers (Non-US SD), who enter into swaps with a non-US person, where those swaps are regularly arranged, negotiated, or executed by personnel or agents of the Non-U.S. SD located in the United States.

Prior to the relief, such transactions required 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

Single-Dealer Platforms evolve and remain relevant


The evolving global regulatory landscape is fundamentally changing how banks operate, the returns available, the business lines and markets in which they can effectively compete, and the way in which they interact with and service their clients via their Single-Dealer Platforms.

For example, under Dodd Frank, standardised swaps trading with clients will migrate from OTC bilateral trading, over to regulated venues such as SEFs. This will see the value proposition and revenue generated for banks likewise shift from a Continue reading

CME granted Temporary SEF Status


Better late than never! The CFTC has granted the CME temporary SEF registration, bringing to 18 the number of platforms that have been granted temporary SEF registration.

No

SEF

Applied

Granted

SEF Status

1

BGC

04-Sep-13

19-Sep-13

Temp Status

2

Bloomberg

04-Jun-13

30-Jul-13

Temp Status

3

Dealer Web

03-Jul-13

06-Sep-13

Temp Status

4

GFI

22-Jul-13

13-Sep-13

Temp Status

5

Ice Swap Trade

05-Aug-13

20-Sep-13

Temp Status

6

Javelin

02-Aug-13

19-Sep-13

Temp Status

7

MarketAxess

15-Jul-13

16-Sep-13

Temp Status

8

SwapEx

30-Jul-13

13-Sep-13

Temp Status

9

Tradeweb

03-Jul-13

06-Sep-13

Temp Status

10

TrueEX

15-Jul-13

20-Sep-13

Temp Status

11

TeraExchange

30-Jul-13

19-Sep-13

Temp Status

12

360T

28-Aug-13

23-Sep-13

Temp Status

13

Integral

31-Jul-13

24-Sep-13

Temp Status

14

ICAP

03-Sep-13

27-Sep-13

Temp Status

15

Thomson Reuters

09-Sep-13

27-Sep-13

Temp Status

16

Tradition SEF Inc

09-Sep-13

25-Sep-13

Temp Status

17

Tullet-Prebon (tpSEF)

23-Aug-13

25-Sep-13

Temp Status

18

CME

17-Sep-13

04-Nov-13

Temp Status

19

Latam SEF

25-Sep-13

 

Exemption till 19 Nov

20

YieldBroker

27-Sep-13

 

Exemption till
1 Dec

21

GTX SEF LLC

30-Sep-13

 

 

22

SDX Trading LLC

01-Oct-13

 

 

The CFTC site has a section showing status of SEF filing applications.

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