Tag: foreign

Congresswoman Urges Review of Bank Guarantees of Offshore Affiliates

Maxine Waters, ranking member of the House Financial Services Committee, urged the CFTC this week to begin investigating the offshore actions of Wall Street banks in avoiding certain mandates set forth in the Dodd-Frank Act. In a letter to Timothy Massad, the CFTC’s recently-confirmed chairman, Representative Waters criticized the removal by banks of parent guarantees from overseas affiliates, which allows banks to trade in the interdealer market while skirting Dodd-Frank restrictions aimed at increasing price competition and transparency. By cutting off these guarantees, banks are able to trade in the United States through swap execution facilities established under Dodd-Frank, while their non-guaranteed subsidiaries are subject only to local laws of foreign jurisdictions.

Rep. Waters also sent letters to the Federal Reserve, Office of the Comptroller of the Currency, Securities and Exchange Commission, and Federal Deposit Insurance Corporation. In these correspondences, Rep. Waters reiterated that the CFTC should take a more aggressive stance in reviewing changes to the guarantees.

CFTC Extends Overseas Trade Rules Deadline

The Commodity Futures Trading Commission issued a no-action letter on Friday stating that the Commission will be extending its overseas trading rules deadline, giving overseas traders more time to comply with the CFTC’s rules.

The CFTC and European regulators came to an agreement in February over how both regulators would handle overseas trading rules, where the CFTC agreed to allow US traders to use overseas trading platforms, as long as those platforms were following comparable rules to US platforms.

It was expected that European traders would be prepared for this rule to go into effect by Marc 24th. However, after requests from European trading firms, the CFTC will now be extending the deadline for compliance to May 14th.

On top of extending the deadline to comply with overseas trade rules, the CFTC will also be changing the conditions firms will have to meet in order to be in compliance, which the Commission will be detailing in a statement they will release sometime next week.

The CFTC seems to be backpedaling quite a bit from its previous stance on overseas trade rules. Initially, the Commission was planning to have a rather wide sphere of influence over trades happening between foreign firms and US traders in overseas offices.

However, after seeing significant backlash over this stance, even being sued by US banks and trading organizations for overstepping it’s boundaries, it seems the CFTC is now much more willing to work with overseas regulators.

Regulators to Blame for OTC Market Split, According to O’Malia

While at the Futures Industry Association’s annual meeting last week, CFTC commissioner Scott O’Malia says that any split between foreign and US traders  in the OTC market is unwanted, and if a split has happened, then it should be blamed on regulators.

In a study done by the ISDA, Cross-Border Fragmentation of Global OTC Derivatives: An Empirical Analysis, it was found that the trade volume between Europe and the US in the OTC market dropped 77% in October, after swap execution facility (SEF) trading went into effect. Trade volumes remained low through the end of the year.

During the same time, OTC market trade volume between European traders rose significantly, seeming to point to an obvious correlation between US SEF trading and Europe’s declining interest in trading with the US.

Even with this study however, O’Malia stated that he is yet to see convincing evidence that European traders aren’t doing business with US firms specifically to avoid the clearing and execution rules that the US currently has to comply to. He did admit that there is a lot of uncertainty in the market right now however, and that this needs to be addressed.

O’Malia mentioned that the dip in cross borer trading in the OTC market could be due to European firms waiting for the Markets in Financial Instruments Directive (MFID) to be revised. It’s believed that the revisions to MFID will put European trading firms in compliance with CFTC rules. These firms may be waiting for this rather than changing their current practices to match the CFTC’s.

 

CFTC and EU Work Out Cross-Border Trading Agreement

The Commodity Futures Trading Commission (CFTC) and the European Union (EU) have been butting heads over how to jointly regulate international swap trades for some time now. But after meeting yesterday, it seems the two regulators have finally worked out a cross-border trading agreement.

The CFTC and the EU have agreed to allow US firms to trade over European platforms, rather than forcing them to be traded through US swap execution facilities, or SEFs. The cross-border trading agreement will keep liquidity within the market, as well as ease tensions between the US and Europe over the CFTC’s foreign trading policy.

The agreement is not without restrictions however. In order for trades to be executed outside of US facilities, the country handling the trade must have standards in place that can be considered comparable to the CFTC’s. While this may seem simple enough, the requirement has so far only been met by the UK, according to the commission.

It also may be some time before other European countries are considered up to par by the Commission, as the EU isn’t planning to have its trading rules in place until 2016.

This new cross-border trading agreement is quite the turnaround for the CFTC— which was actually sued for its overbearing foreign trading policies toward the end of last year. This is no doubt due in part to former chairman Gary Gensler stepping down, and it will be interesting to see how the market fares with a more lenient CFTC.

Blythe Masters Joins CFTC Advisory Committee

JP Morgan’s commodities chief, Blythe Masters, is now a member of a CFTC advisory committee, according to an announcement made yesterday by the Commodity Futures Trading Commission.

Masters has been working in the swaps industry for well over a decade, and helped JP Morgan begin using credit default swaps to hedge bank risks.

She will be taking part in a discussion the CFTC advisory committee will be having next week over the Commission’s cross-border regulation policy.

The policy, which has been bemoaned by both foreign and domestic banks, says that trades made by foreign banks still fall under CFTC rules if U.S.-located personnel arrange, execute or negotiate the transactions.

The CFTC was sued by several banks recently for this policy, and it seems the Commission is now seeking to amend its guidelines.

Masters is joining the CFTC advisory committee just as JP Morgan is selling of its physical commodities business. The reason for the bank’s decision to sell off its multi-billion dollar operation seems to be the amount of headaches many of the new rules have created for banks in recent times.

The CFTCs apparent change of heart over cross-border regulation has come quickly after former chairman Gary Gensler stepped down, and it seems likely that banks will see a softer side of the CFTC over the next few months, and possibly years because of this.

US an EU Close to Deal on Cross-Border Derivatives Rules

The US and European Union have been working on an agreement over cross-border derivatives rules for a while now, and are finally closing in on a deal, according to Bloomberg.

The agreement will relieve EU trading platforms from being affected by US derivative trading rules, at least for the time being.

The deal is being handled by the Commodity Futures Trading Commission (CFTC) and European Union officials, and while it seems they’ve come to an agreement over cross border-trading rules, nothing will be finalized until February 15th.

The US’s policy on cross-border trading had been a point on contention for many large banks, some of which have recently sued the CFTC over its ability to police trades that are made from banks outside of the country.

The CFTC claimed that any trades made by an outside bank that was essentially at all linked to a US trader would have to do so according to the CFTC’s rules. This policy however, was causing foreign banks to stop trading with the US and creating fragmentation within the market, according to banks involved with the issue.

This turnaround for the CFTC seems to mark the beginning of a different type of Commission, quite possibly caused by Gary Gensler stepping down as CFTC chairman. Gensler was known for policing the derivative market very strictly, and it seems likely that the CFTC will loosen up a bit with him gone.

Singapore Exchange Granted Clearing Certification by CFTC

According to the Financial Times, US regulators will now allow the Singapore Exchange to clear over-the-counter derivatives trades for American customers. This makes the Singapore Exchange the first Asian exchange to be granted this certification.

After the 2008 finical crises, the US passed the Dodd-Frank Act in order to help police the derivatives market, which is often cited as a major cause of the crisis. One of the requirements of the Dodd-Frank Act is that derivative trades be processed through clearing houses like the Singapore Exchange, guarding the market against any negative impacts that could occur should one of the parties of a trade default.

With this approval, the Singapore Exchange can now offer US traders local clearing services for products like iron ore swaps, interest rate swaps and non-deliverable foreign exchange forwards.

Approval for the Singapore Exchange came just as the Commodity Futures Trading Commission and the Monetary Authority of Singapore agreed to work together in supervising financial institutions that will involve both US and Singapore derivative markets.

Singapore is expected to mandate all trading be cleared through clearing houses sometime after the middle of 2014, bringing it up to pace with US and European regulations.

The Singapore Exchange is still waiting on similar approval from European regulators.

Federal Reserve Completes Swaps Push out Rule

According to Bloomberg, the Federal Reserve has completed a new rule based on a Dodd-Frank Act requirement known as the push out rule, which will force banks to fence off foreign derivatives trades from US branches.

The push out rule, which hasn’t been changed since its initial drafting in back in June, will go into effect on January 31st. For the time being, uninsured foreign branches of US banks will be treated as though they have government backing—including deposit insurance.

Though the rule is supposed to go into effect on the 31st, many banks have already asked for and received grace periods of up to two years to comply.

In an attempt to make the market safer after derivative trading was linked to the financial crises of 2008, the push out rule has been designed to alleviate pressure from the US government in the event of another crisis by forcing foreign bank branches to separate certain equity, some commodity, and non-cleared credit derivatives from US branches.

With the push out rule coming into effect at the end of next month, banks will now have to either stop the affected swaps trading or move it to properly capitalized affiliates.

EU Reaches Agreement on New Financial Regulations

According to Reuters, after months of discussions and arguments, the EU has finally begun to come together over how it plans to regulate the swaps industry.

After agreeing to work with the US over working out global standards to police the $600 trillion dollar derivatives industry, which is thought to have played a major role in the financial crisis of 2008, the EU has fallen behind the US’s Commodity Futures Trading Commission in creating and implementing new rules for the system.  An understandable issue, while the CFTC is a US only entity, the EU has to convince whole separate countries to agree before implementing rules.

Though this marks another step taken towards financial stability, it seems there is still a long way to go, and it may take some time before even the next step is made.

The EU has only about three more months to discuss policy before the European Parliament begins to campaign for May elections. And, after which, the EU will have to wait until October for a new European commission to continue.

This should make for an interesting few months as the EU scrambles to get laws in place that synch up to the CFTC’s, which is refusing to acknowledge any rules from foreign regulators that the Commission does not find up to par with its own.

CFTC Considers Taking its Derivatives Trading Rules Overseas

According to the Wall Street Journal, the Commodity Futures Trading Commission may be looking to force the derivatives trading rules the Commission has implemented in the US onto foreign markets.

The CFTC had agreed to delay the deadline for foreign markets to comply to US trading rules while the European Commission and other foreign regulators came up with their own derivatives trading rules in hopes that they could all work together in policing the $693 trillion dollar market. However, having decided that foreign regulators haven’t been strict enough, the CFTC is now considering ignoring foreign rules, and enforcing US regulations onto all overseas entities linked to US derivative trading.

The CFTC’s continued march forward in its implementation of derivatives trading rules despite lagging foreign counterparts has drawn criticism from many who feel that doing so is an affront to the G-20 agreement to coordinate international rule-making through the Financial Stability Board.

Experts in the field also claim that forcing overseas entities to adhere to CFTC rules will cause unnecessary double reporting, which would be both time consuming and costly.

It’s interesting to see the CFTC still pursuing such strict overseas rules, as the Commission was sued just last month by US financial groups over the same matter.

The CFTC will be holding a meeting later this week to finalize their recommendations before the new derivatives trading rules go into effect.