Posted on October 14, 2015 by Paul Blank
Tougher regulatory requirements around capital and leverage ratios, and Volcker rules around prop trading, continue to reduce the ability and appetite of banks to provide principal based market-making activities, and warehouse risk. The more capital-intensive the product (such as inventory based corporate bonds), the less appetite banks have to provide such services.
As a consequence, there has been a reduction in levels of liquidity in some markets, resulting in increased volatility as market-makers are less able to provide immediacy risk transfer pricing and take large positions onto their books.
However, as banks step back, non-bank market-making firms are stepping up to the plate to provide those services. Which is why, back in September, I mentioned that the move by Zar Amrolia from (the Mighty) Deutsche Bank to the non-bank market maker XTX, was a sign of the times.
With that in mind, it’s interesting to read Continue reading
Filed under: Dodd Frank, Paul Blank, SEF, SWAPS | Leave a comment »
Posted on October 28, 2014 by Paul Blank
The evolving regulatory regimes and mandates of Dodd-Frank, Volcker Rule, EMIR, MiFid II and Basel capital reforms are designed to increase transparency, reduce risk and drive OTC derivatives markets onto transparent and regulated markets and platforms.
As a result banks are radically changing, (and indeed cannibalizing) business models within the fixed income (FICC) businesses, pulling back or even withdrawing from more capital-intensive inventory based market-making activities in products such as credits as they move towards what is called a ‘capital light operating model’.
Banks are now specialising around core skills, value propositions and client franchise, with a reduction in those willing to be flow banks, whilst others specialise in execution capabilities around an agency model. As a result, clients will be offered execution services from banks that will be a blend of principal/agency, bilateral/cleared, all of which requiring investment by dealers in new technology and connectivity pipes to execution venues such as SEFs, post-trade reporting (TR) repositories, central clearing houses (CCPs) and more.
So, what’s happening in Europe in terms of fixed income e-trading, and in particular what’s the future for single-dealer platforms in fixed income? Continue reading
Filed under: Paul Blank, SEF, Single-Dealer Platforms, SWAPS | Leave a comment »
Posted on July 24, 2014 by Paul Blank
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,
Filed under: CCP, OTF, Paul Blank, Regulation, SEF, SWAPS, Web trading technology | 1 Comment »
Posted on March 13, 2014 by Paul Blank
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.
Filed under: Paul Blank, SEF, SWAPS | Leave a comment »
Posted on March 3, 2014 by Paul Blank
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
Filed under: CCP, Dodd Frank, FX, OTC, OTF, Paul Blank, Regulation, SEF, SWAPS | Leave a comment »
Posted on February 21, 2014 by Paul Blank
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
Filed under: CEP, CFTC, Dodd Frank, OTC, Paul Blank, Regulation, SEF, SWAPS | 1 Comment »
Posted on January 17, 2014 by Paul Blank
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:
Filed under: CFTC, Paul Blank, Regulation, SEF, SWAPS | 2 Comments »