By Huw Jones July 9, 2020, Reuters
Global financial regulators set out recommendations on Thursday for coordinating and speeding up preparations to scrap Libor, an interest rate benchmark banks were fined billions of dollars for trying to rig.
The Financial Stability Board (FSB), which coordinates financial rules for the Group of 20 Economies (G20), surveyed the readiness of countries, banks and companies for getting rid of the benchmark by the end of 2021. Libor is currently used for pricing credit cards, home loans, company loans and derivatives worth trillions of dollars.
By Jim Brunsden and Philip Stafford July 9, 2020, Financial Times
Brussels is to adopt emergency measures to preserve Europe’s access to crucial UK financial market infrastructure after the country’s post-Brexit transition period expires, the bloc’s regulation chief said on Thursday.
Valdis Dombrovskis, the European Commission’s executive vice-president in charge of financial policy, said Brussels would adopt “time-limited” access rights to make sure that European companies could still access UK-based clearing houses after the end of this year.
By Wendy Lisney July 10, 2020, Global Investor Group
Derivatives trade bodies are calling on European regulators to provide clarity on whether European central counterparties (CCPs) will be able to access UK liquidity pools under the European Markets Infrastructure Regulation (EMIR) 2.2 framework.
In a response to an EC consultation on comparable compliance under EMIR 2.2, the Futures Industry Association and International Swaps and Derivatives Association have asked the European Commission to confirm if the finalised framework will include EU equivalence for UK CCPs, or provide temporary equivalence until the regulatory regime is completed.
By Samuel Wilkes July 9, 2020, Risk
The migration of cleared swaps from UK central counterparties to EU counterparts has only made slow and immaterial progress, according to clearing members speaking during a virtual conference.
“Eurex does seem to be making some headway in volumes … but I think if you look at numbers directly, at rates clearing volumes at LCH and Eurex, material risk transferred between the two CCPs hasn’t really played out yet, particularly for the longer-dated portfolios,” said Farida El-Gammal, global clearing product development at JP Morgan.
By Samuel Wilkes July 9, 2020, Risk
It’s uncontroversial to say that financial markets transparency in Europe has so far failed. Launched in 2018, the current transparency regime has created fixed income and derivatives trade data that is mostly unusable, say participants.
But while everyone agrees the regime must be improved, no-one agrees on how. The thorniest issue now splintering the market is whether to alter the timing of post-trade publication.
By Luke Clancy July 6, 2020, Risk
Leading buy-side firms are calling time on the brokerage charging models used by some liquidity aggregators, joining dealers in a growing protest.
In at least two cases, buy-side users of an aggregator have been able to push the vendor into applying an annual licence fee instead of per-trade charges.
By Perle Battistella July 8, 2020, Global Investor Group
The European Fund and Asset Management Association (EFAMA) has responded to the three European Supervisory Authorities (ESAs) consultation paper on the environmental, social and governance (ESG) disclosure regulation, stating that the Markets in Financial Instruments Directive (Mifid) must be fully aligned with the regulation and offer a clear distinction between Article 8 products and Article 9 products.
Europe’s Sustainable Finance Disclosures Regulation (SFDR), which comes into force in March 2021, distinguishes Article 8 and 9 products as the latter relating to products with sustainability objectives or impacts, and the former as products that promote ESG characteristics.
By Alex Rolandi June 23, 2020, Funds Europe
UK regulator the Financial Conduct Authority’s new chief executive Nikhil Rathi has been called on to ensure that equivalency is a key priority throughout ongoing Brexit negotiations.
Rathil, who was appointed as the FCA’s chief executive on Monday, joins the organisation from the London Stock Exchange. He has been hired following Andrew Bailey’s departure to the Bank of England earlier this year.
By Colby Smith July 9, 2020, Financial Times
The US Federal Reserve’s unprecedented 10-month intervention in short-term borrowing markets has been wound down, after the central bank successfully tamed volatile funding costs that had threatened to cause disruption across the financial system.
The volume of the Fed’s operations in the repo market, where investors swap high-quality collateral like US Treasuries for cash, fell to zero this week after the central bank’s latest 28-day loan matured on Tuesday, taking a final $53.2bn out of the market.
By Liz Capo McCormick and Stephen Spratt July 9, 2020, Bloomberg Law
Stricter banking regulations enacted after 2008’s global financial crisis risk undermining the effectiveness of U.S. monetary policy in times of stress, according to a report examining the cause of turbulence in funding markets last September.
U.S. global systemically important banks have become the world’s “lenders-of-second-to-last-resort,” a new draft of a report written by Wenxin Du of the University of Chicago and two Federal Reserve economists concluded. That was the case in September when large banks tapped reserves at the Fed to increase short-term lending amid a quarter-end dollar shortage that saw interest rates in repurchase-agreement markets spike higher.
Major exchanges are increasing access to digital currencies through technology and taxonomy innovations. Shanny Basar talks through the latest from NASDAQ and LSEG with Dan Barnes on Me the Money Show.
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 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 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 Nick Timiraos Aug. 2, 2020, The Wall Street Journal
The Federal Reserve is preparing to effectively abandon its strategy of pre-emptively lifting interest rates to head off higher inflation, a practice it has followed for more than three decades.
Instead, Fed officials would take a more relaxed view by allowing for periods in which inflation would run slightly above the central bank’s 2% target, to make up for past episodes in which inflation ran below the target.
By Tim Ahmann August 2, 2020, Reuters
The U.S. economy could benefit if the nation were to “lock down really hard” for four to six weeks, a top Federal Reserve official said on Sunday, adding that Congress can well afford large sums for coronavirus relief efforts.
The economy, which in the second quarter suffered its biggest blow since the Great Depression, would be able to mount a robust recovery, but only if the virus were brought under control, Neel Kashkari, president of the Minneapolis Federal Reserve Bank, told CBS’ “Face the Nation.”
By Hannah Lang July 31, 2020, Reuters
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.
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