OTC Derivatives

  • 924

    EMRR: a crucial component to successful risk management

    Exceptions, or processing failures due to erroneous data, are a daily occurrence for market participants as they fulfill their regulatory reporting obligations. However, as regulators seek more granular data for over-the-counter (OTC) derivatives trading activity, exceptions are becoming more frequent and more complex. That’s driving the need for exception management in regulatory reporting (EMRR), which is the process of identifying, investigating and resolving conflicts during data reporting transfers. In this article, Basu Bishal and Rohit Narula explain why EMRR should be a component of every trading firm’s risk management system and how effective implementation can minimize compliance costs while freeing [...]
  • 73

    DERIVATIVES GOVERNANCE: enabling product innovation for asset managers

    Derivatives are becoming a valuable tool for asset managers to boost product innovation and deliver outperformance in a risk-controlled manner. But current, reactive governance structures are creating a long lead time for assessing and approving a new derivative instrument. Geoff Cole and Jackie Colella explain how strengthening governance, approval and operational due diligence can help investment managers reduce time to market and more quickly respond to portfolio managers’ needs. Typically considered an instrument reserved for hedge funds and complex investment strategies, derivatives are becoming far more common within investment portfolios and are increasingly desired by portfolio managers for exposure and [...]
  • 202

    THE HIGH PRICE OF NON-STANDARD COMMUNICATION: firms reduce costs, errors and risk for OTC cleared derivatives reporting and communications by adopting new clearing connectivity standard

    Now that some of the dust has settled following the implementation of several regulatory initiatives, such as Dodd-Frank, MiFID II/MiFIR, and European Market Infrastructure Regulation (EMIR), many financial institutions are grappling with how to deal with the impact these initiatives have had on their derivatives business. In this article, Phil Matricardi and Adam Kott discuss why firms are adopting the new ISDA Clearing Connectivity Standard (CCS), introduced two years ago, for derivatives reporting and communication and why an industry utility for data transformation is a necessary next step. OVERVIEW New regulatory requirements, combined with the increasing volume of cleared derivative [...]
  • 335

    MIFID II: harmonization mandates new business models in the OTC space

    Regulatory initiatives, such as the Dodd-Frank Act and EMIR, have had a seismic impact on derivatives markets. The Financial Stability Board’s seventh progress report on the implementation of OTC derivatives market reforms has highlighted crossborder consistency issues arising from different jurisdictions. The combined effect of these regulations through the mandated electronic trading and central clearing of standardized derivatives contracts has been the “balkanization of the capital markets,” causing pockets of liquidity and varying prices for the same contracts across jurisdictions. With the implementation of MiFID II/MiFIR on the horizon in Europe, the industry is anticipating a more level playing field [...]
  • 319

    CROSS-ASSET UNIVERSAL PRODUCT IDENTIFIER: is this the solution the industry is looking for?

    Covering the entire spectrum of asset classes and financial services, from loans and credit cards to derivatives and bond positions, a Universal Product Identifier (UPI) will enable a holistic approach to identifying all trades and positions, including capital calculations, reporting, clearing mandates and booking rules. While such an idea sounds great in theory, historical attempts at achieving global agreement have fallen short, even within a subsector of the industry. Peter Meechan, Jim Bennett and Pauline Tykochinsky examine the feasibility of universal product codes, ponder whether the industry is ready to come together to create them, and discuss what a potential [...]
  • 727

    MARKIT METRICS: Q3 2013 trend analysis

    Since 2005, Sapient Global Markets and Markit have worked together to provide the G15 banks with global derivative transaction metrics for the over-the-counter (OTC) Derivatives Regulators’ Forum chaired by the Federal Reserve Bank of New York. The dealer group community utilizes this data to increase operational efficiency, along with verifying the ranking within the group and evaluating trading activity. The key metrics encompass OTC derivatives transaction volume and electronic processing of trade confirmations and measures the time delay in issuing trade confirmations. The industryís desire for self-regulation stated by the introduction of commitments to the OTC Derivatives Regulators Forum (ODRF) [...]
  • 649

    AUTOMATED RETAIL DERIVATIVES PLATFORMS: challenges and opportunities

    The retail derivatives industry faces the same challenges seen in many mature financial markets: slow growth, heightening competition, increasing regulatory requirements and demanding clients. In this article, Stefan Naumann, Patric Mayer and Roger Waldhausen discuss how the automation of product platforms can help banks proactively maintain and expand their market share and highlight the different options to get there. During the last several years, the market for retail derivatives in central Europe has been in turmoil. In the early days, structured products, also known as certificates, were highly successful, sold well and provided high margins to the issuing banks. Because [...]
  • 566

    SWAP EXECUTION FACILITIES: a catalyst for OTC market change?

    Could mandatory electronic execution of over-the-counter (OTC) derivatives, stemming from the 2009 G20 Pittsburgh Summit, act as the catalyst in spawning new business models? Jim Myers, Kimon Mikroulis and Paul Gibson discuss the impact of mandatory electronic execution for certain OTC products under the most advanced of these electronic mandates, Dodd-Frankís swap execution facilities (SEF). As the OTC markets are entering a phase of rapid evolution, concepts that were originally created in the exchange-traded world, such as sponsored access, agency execution and general price aggregation, are emerging as critical issues to be addressed by OTC market participants. Introduction The Dodd-Frank [...]
  • 813

    MARGIN ON UNCLEARED SWAPS: a review of the key elements that will drive margining

    With adherence to the Dodd-Frank Act and EMIR clearing requirements well underway, the attention of global regulators has turned to the non-centrally cleared over-the-counter (OTC) derivatives portion of the OTC sector. In 2011, the G20 agreed to add margin requirements for non-centrally cleared derivatives to the reform program. Subsequently, the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) have been tasked with developing a set of key principles to ensure that appropriate margining practices are established for all non-centrally cleared OTC derivative transactions. Recently, the third and final iteration of the framework establishing the [...]
  • 789

    OTC TRADE DOCUMENTATION: a revolution awaits

    Until the third quarter of 2012, trade confirmations had existed on the periphery of the regulatory change agenda. Previously, the Over-the-Counter (OTC) derivative industry had been fully focused on meeting regulatory obligations in relation to swaps clearing and reporting. This all changed in a matter of weeks as the Commodity Futures Trading Commission (CFTC) in the US and the European Securities and Markets Authority (ESMA) both published final rules detailing their future requirements for this area of the market2 3. In this article, Nick Fry outlines what is being mandated by the regulators; why compliance is going to be such [...]