By Hayley McDowell September 21, 2020, The Trade UK central clearing counterparties (CCPs) have been granted equivalence by the European Commission for 18 months from January 2021 as the Brexit transition period ends.
In a statement, the Commission said the time-limited equivalence decision was made to ensure market participants have enough time to reduce their exposure to UK-based CCPs.full article
By Huw Jones September 21, 2020, Reuters Euribor, a euro version of the tarnished Libor interest rate benchmark, will be available for the foreseeable future, the European Union’s markets watchdog said on Monday.
Regulators are ending the use of sterling and dollar Libor or London Interbank Offered Rate by the end of next year after banks were fined billions of dollars for trying to manipulate the benchmark.full article
By Dan Barnes September 17, 2020, The Desk
Analysis by research firm Greenwich Associates has found the US Treasury market saw volatility 50% lower in August 2020 than in August 2019, which report author Kevin McPartland observed is “a somewhat crazy notion given the state of the global economy in 2020 compared to a year ago.”
Volume and volatility were depressed in August, the research found, compared to the same period last year with the average daily volume (ADV) of US Treasury trading reaching US$493 billion, lower by 18% compared with August 2019 and slightly up on July 2020.
By Robin Wigglesworth September 21, 2020, Financial Times The US government bond market is akin to the investment world’s bomb shelter, a safe space where everyone can seek refuge when the rest of the financial system is exploding. In March, the bomb shelter itself started to rumble ominously. Treasuries are easily the biggest and most traded fixed-income securities on earth. Thanks to their safety, liquidity and the American dollar’s status as the global reserve currency, they are the world’s “risk-free” rate, the default haven, and facilitate a vast amount of financial transactions.full article
By Tommy Stubbington September 21, 2020, Financial Times
European banks have loaded up on more than €200bn of their own governments’ bonds since the start of the Covid-19 pandemic, in a move that could reawaken fears about the sector’s growing stockpiles of risky sovereign debt.
According to research by S&P Global Ratings, banks had increased their holdings of home-country government bonds to nearly €1.6tn by the end of June, up 15 per cent from the end of February. The rating agency said the pace of purchases was seven times faster than in the same period in 2019.
By Wendy Lisney August 4, 2020, Global Investor Group
This year’s key milestones in the transition away from Libor will not generate liquidity in alternative rates if the industry remains passive, a panelist has said.
Jack Hattem, managing director at BlackRock, said the milestones include the International Swaps and Derivatives Association’s (ISDA) fallback rates and forthcoming fallback protocol for Libor and other key interbank offered rates, as well as the “big bang” discounting switch by central counterparty clearing houses (CCPs).
By Christoper Whittall August 5, 2020, IFR
Sharp market swings and rising bankruptcies have failed to dampen activity in a complex breed of credit derivatives that enable investors to take leveraged bets on company defaults.
The net size of the market for tranches of synthetic collateralised debt obligations linked to credit indices has increased to a four-year high of US$141bn, according to the DTCC. That comes amid a flurry of trading, with volumes of tranched credit-default swap indices rising 45% annually in the first half of the year to US$96bn, according to IHS Markit.
By Serena Ng and Nick Timiraos August 3, 2020, The Wall Street Journal
When the coronavirus brought the world economy to a halt in March, it fell to the U.S. Federal Reserve to keep the wheels of finance turning for businesses across America.
And when funds stopped flowing to many banks and companies outside America’s borders—from Japanese lenders making bets on U.S. corporate debt to Singapore traders needing U.S. dollars to pay for imports—the U.S. central bank stepped in again.
By Rich Miller and Jesse Hamilton August 3, 2020, Bloomberg
The Federal Reserve and other central banks are heading for a collision with shadow lenders — the firms with a sinister nickname that are increasingly dominating global finance.
Even as policy makers struggle to reopen their economies in the midst of the coronavirous pandemic, they’ve launched a review of what went wrong with markets in March, when a worldwide dash for cash by investors nearly crashed the financial system and forced unprecedented rescue actions by central banks. Their focus is on loosely regulated money market and hedge funds, mortgage originators and other entities. Already, some watchdogs have pointed to highly leveraged trades involving U.S. Treasuries as one source of the turmoil.
By Wendy Lisney August 3, 2020, Global Investor Group
The Options Clearing Corporation (OCC) is seeking regulatory approval to set a minimum amount of skin-in-the-game as part of a series of measures to reduce costs for participants in US equity derivatives markets.
The Chicago-headquartered clearing house will submit a proposal to the Securities and Exchange Commission (SEC) to amend its capital management policy to establish a persistent amount of skin-in-the-game, chief executive officer John Davidson told Global Investor on Monday.
By Wendy Lisney August 3, 2020, Global Investor Group
The growing adoption of machine learning by participants in fixed income, currencies and commodities (FICC) markets could lead to increased conduct risk, the FICC Markets Standards Board has warned.
“The complexity of machine learning can lead to increased model risks when it is deployed in algorithmic trading,” the London-based standards-setting body said in a report exploring market surveillance challenges released on Monday.
By Siobhan Riding August 1, 2020, Financial Times
On a cold Wednesday morning in February, the chairmen of the UK’s two largest listed fund managers were called to the British parliament’s upper house to present their vision for the country’s £9tn asset management market after Brexit.
Michael Dobson of Schroders and Douglas Flint of Standard Life Aberdeen were upbeat, telling the House of Lords panel that the UK, already the largest investment management centre in Europe, could become even more attractive once it broke free of EU regulations.
By Chris Flood August 2, 2020, Financial Times
A top US investment industry regulator has called for pension savers to be granted greater access to private markets in a push that would ease the path for ordinary investors to increase their exposure to riskier strategies.
Dalia Blass, director of the Securities and Exchange Commission’s investment management division, said last week that main street investors had been left “on the outside looking in” because defined contribution pension plans did not provide access to private investments such as private equity, hedge funds and real estate.
By Ann Saphir August 3, 2020, Reuters
Loan officers at U.S. banks reported tightening standards and terms on all types of business, real estate and consumer loans in the second quarter as widespread coronavirus-related shutdowns plunged the economy into recession and tens of millions of workers lost their jobs.
Demand for nearly all types of loans also fell, according to the Federal Reserve’s survey of senior loan officers, with the sole exception being demand for residential real estate loans, which strengthened. Banks reported that, on balance, lending standards across all loan categories were at the “tighter end of the range” of standards in effect from 2005 to the present.
By Sharon Thiruchelvam August 3, 2020, Risk
A Commodity Futures Trading Commission plan to revise US rules for block trades in swaps has drawn a cool response from the industry, with participants at an advisory committee providing feedback that undermines some of the justification for the proposal.
Tradeweb and Bloomberg swap execution facilities (Sefs), which account for more than 75% of all interest rate swap block trades on-venue, both told a meeting of the CFTC’s market risk advisory committee (MRAC) on July 21 that their markets had continued to function well even in the face of extreme volatility caused by the Covid-19 crisis in March. Both venues registered record volumes of block trades, although price dispersion was high.
“The platform held up very well, particularly in its ability to allow participants to move sizeable amounts of risk in a time of crisis,” Tradeweb’s head of rates products and strategy, Elisabeth Kirby, told the MRAC, noting...
By Laura Noonan and Philip Stafford August 2, 2020, Financial Times
Financial regulators risk “utter mayhem” in markets if they do not radically toughen their plans to reform clearing houses, former deputy Bank of England governor Paul Tucker has warned.
Clearing houses, run by companies such as LCH, CME Group and Intercontinental Exchange, have been in the crosshairs of global regulators since the 2008 financial crisis. Their vital role, standing between parties trading trillions of dollars a day and dealing with defaults, has raised concern that they are “too important to fail”.
By Robert Mackenzie Smith July 31, 2020, Risk
The potential for Libor benchmarks to be discontinued at different times is leading to valuation uncertainty in the cross-currency swap market, say dealers.
When an announcement is made to signal the end of a Libor rate – which could be as early as this year – the rate to which outstanding Libor-linked contracts will fall back to is set. But participants are concerned that any announcement might not cover all 35 Libor currencies and tenors at once.
By Ross Lancaster July 30, 2020, GlobalCapital
A decision by the US Commodity Futures Trading Commission (CFTC) last week regarding European Union multilateral trading facilities (MTFs) and organised trading facilities (OTFs) could be a glum preview of the UK’s cross-border regulatory affairs.
Last Thursday, the CFTC issued an order that exempted 16 EU MTFs and OTFs from having to register as swap execution facilities (SEFs).
By Hannah Lang July 31, 2020, American Banker
The Federal Housing Finance Agency quietly imposed new liquidity requirements on Fannie Mae and Freddie Mac in June that will require the mortgage giants to hold more liquid assets to cover sudden funding shortfalls, but that the companies say may result in lower net interest income.
The mortgage giants detailed the new minimum liquidity requirements in 10-Q filings released Thursday. The liquidity benchmarks in some ways resemble those that bank regulators have imposed on large financial institutions. The new standards also mark another step by the FHFA under Director Mark Calabria to strengthen the balance sheets of the government-sponsored enterprises.
By Christopher Maloney July 30, 2020, Bloomberg Law
The number of mortgage loans in forbearance has been trending downward for six weeks, but it’s too early to sound the all-clear.
The CARES Act, signed into law on March 27, allows any U.S. homeowner with a taxpayer-backed mortgage to demand forbearance and stop paying their loan for six months, with the option to extend it for another six months. While the number of Americans taking advantage of this has fallen since June, at this time 3.9 million households remain in forbearance.
By Huw Jones July 30, 2020, Reuters
Some banks in the European Union hold large exposures of increasingly risky leveraged loans that could be hard to offload if investor appetite were to vanish due to the pandemic, the bloc’s banking watchdog said on Thursday.
Banks have found the sector offering higher yields at a time of low interest rates, which have been cut further since March as central banks seek to mitigate economic downturns following COVID-19 lockdowns.
By Hayley McDowell July 30, 2020, The Trade
Asset managers have upped efforts in the switch from the Libor benchmark before it is withdrawn at the end of 2021, according to new data from the Investment Association.
The buy-side trade association said investment firms have ramped up plans to move away from Libor to the Sonia (Sterling Overnight Index Average) benchmark, with a recent poll of Investment Association member firms showing that 70% had reduced their exposure to Libor throughout last year.
By Samuel Wilkes July 29, 2020, Risk
Sometimes you just can’t do right for doing wrong – and regulators are no exception. As the European Securities and Markets Authority discovered when it tried to clarify Europe’s labyrinthine rules on transparency for over-the-counter derivatives transactions back in 2017. In launching an opinion document that attempted to disambiguate the rules for OTC trade transparency in the second Markets in Financial Instruments Directive, Esma succeeded only in clouding the picture further.
Now, more than three years on, as legislators and regulators gear up for a review of Mifid II, Esma is still seeking a solution to the transparency rules conundrum. And its answers could mean many more OTC trades get caught in their sights.
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