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Regulation on Over-the-Counter Derivatives and Market infrastructures -FAQs
March 29, 2012--What are derivatives?
A derivative is a financial contract linked to the future value or status of the underlying to which it refers (e.g. the development of interest rates or of a currency value, or the possible bankruptcy of a debtor).
Over-the-Counter (OTC) derivative contracts are not traded on an exchange (for example the London Stock Exchange) but instead privately negotiated between two counterparts (for example a bank and a manufacturer). The definition of OTC derivatives in EMIR refers to all derivatives contracts which are not "executed on a regulated market". As a result all derivatives contracts executed on a venue of execution which is not a regulated market (e.g. a Multilateral trading facility), is considered as an OTC derivative contract under EMIR.
What is the size of the market? What kinds of products are comprised?
OTC derivatives account for almost 95% of the derivatives markets. In June 2011, the notional value of outstanding OTC derivatives was around $707 trillion or €540 trillion. The OTC derivatives market comprises a wide variety of product types across several asset classes (interest rates, credit, equity, foreign exchange (FX) and commodities) with widely differing characteristics and levels of standardisation. OTC derivatives are used in a variety of ways, including for purposes of hedging, investing, and speculating. Contrary to derivatives traded on exchanges, OTC derivatives are not automatically cleared through Central Clearing Parties (cf next question) or subject to reporting rules.
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Source: Europa
Clamping down on the derivatives trade
March 29, 2012--EU legislation to make trade over-the-counter (OTC) derivatives safer and more transparent was approved by an overwhelming majority in Parliament on Thursday.
Derivatives trading is widely believed to have contributed to the global financial crisis. The draft regulation had been provisionally agreed by Parliament and Council negotiators on 9 February.
Obligatory clearing for OTC derivatives, reporting for all derivatives
The regulation lays down that OTC derivative contracts would have to be cleared through central counterparties (CCPs), thus reducing counterparty credit risk, i.e. the risk that one party to the contract may default.
In negotiations, MEPs secured a requirement that all derivative contracts (not only OTC derivatives), would have to be reported to central data centres or "trade repositories", which would have to publish aggregate positions by class of derivatives, thereby offering market players a clearer view of the market.
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Source: European Parliament
NYSE Euronext plans own futures clearing house
March 28, 2012--NYSE Euronext outlined an aggressive plan to create its own clearing house for futures transactions on Wednesday, a move that leaves its current provider, LCH.Clearnet, without a key customer and ends talk the U.S. exchange may try to acquire it.
The move to launch its own clearing unit next year and start moving business off LCH at that point comes after NYSE's rival, the London Stock Exchange, entered exclusive talks to acquire LCH in September last year.
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Source: Reuters
New issuer added to Navesis-ETF
March 28, 2012--Tradition and Nomura today announced that Navesis-ETF, the fully electronic trading platform designed to enhance the way exchange traded funds (ETFs) are traded, has added a new issuer to the platform. Amundi ETF, a division of Amundi Asset Management Group, has made 48 of its most liquid products available to trade on Navesis-ETF.
Following the successful launch of Navesis-ETF in February, and a move into Emerging Markets this month, there are now almost 200 products live on the platform, covering ETFs, ETCs and Fixed Income products. The trading platform continues to widen its offering by adding products from additional issuers and across asset classes, to respond to a rapidly evolving ETF environment.
Amundi ETF joins six other issuers whose products are already on the platform, including db X-trackers, ETF Securities, HSBC, iShares, LyxorETF and Source. With over 100 ETFs* and $9.5bn (€7.1bn) in assets under management at 29 February 2012, Amundi ETF covers the main asset classes (equities, fixed income, EONIA, and commodities) and geographical exposures (Europe, US, emerging markets, and world).
read more NYSE Euronext outlines European clearing strategy and implementation plan read more EDHEC-Risk’s annual European ETF Survey reveals investor attitudes to risk, replication and asset allocation Industry communication on the risks of ETFs has led to the counterparty risk of physical ETFs being underestimated. As a result, investors think that full physical replication (a positive score of 2.28 out of 3) is less risky than synthetic replication (1.41 out of 3) in terms of counterparty risk. Even though almost all physical replication ETFs engage in securities lending, investors fail to appreciate the risk of this activity, giving full replication a score of 2.11 out of 3 for operational risk caused by securities lending, compared to 1.55 out of 3 for synthetic replication, even though synthetic replication ETFs do not use securities lending directly.
view the The EDHEC European ETF Survey 2011 Excellent creditworthiness at Deutsche Boerse Commodities 56.2 tonnes of gold valuing around €2.2 billion are currently stored in the German central vault for securities.
Economy: Bigger euro bailout fund needed to create space to boost growth, OECD says “Weak financial conditions, fiscal consolidation and economic adjustment are restricting demand in the short-term before the long-term benefits on stability and growth are felt,” Mr Gurría said. “Decisive action to restore confidence and support demand is needed now.” Presenting the OECD’s Economic Surveys of the Euro Area and the European Union in Brussels, Mr Gurría said: “The recent measures already taken to strengthen fiscal discipline, provide liquidity and implement growth-enhancing reforms – particularly in Greece, Italy, Portugal and Spain - are important advances towards a brighter economic outlook, but the challenges remain daunting.” read more If you are looking for a particuliar article and can not find it, please feel free to contact us
The Office for National Statistics (ONS) said the economy contracted by 0.3% between October and December last year, taking the annual rate of growth to 0.5%.
Source: FIN24
April 28, 2012--NYSE Euronext today outlined its European clearing strategy and implementation plan, detailing the steps that will be taken to leverage its NYSE Liffe derivatives clearing platform to consolidate all of its European derivatives into a single derivatives clearing house, and delivering significant operational and margin efficiencies for clients.
“Our clients have long asked for a consolidation of clearing arrangements and the strength of our European derivatives business allows us to deliver meaningful benefits for them in the form of capital efficiencies and savings,” said Duncan Niederauer NYSE Euronext CEO. “Formalizing these steps now and communicating them clearly to our customers will allow them to more effectively plan their capital allocation needs and will enhance their operational stability in a highly competitive and fluid environment.”
Source: NYSE Euronext
March 28, 2012--EDHEC-Risk Institute has announced the results of the EDHEC European ETF Survey 2011, which represents a comprehensive survey of 174 European ETF investors. The survey was conducted as part of the Amundi ETF research chair at EDHEC-Risk Institute on "Core-Satellite and ETF Investment."
In relation to the issues raised by financial authorities and international organisations on ETF risks, the survey suggests that investors have a differentiated view on different replication methods, taking several dimensions into account such as cost, tracking error, and accessibility of broad indices, among others, when making choices on the preferred replication mechanism. Depending on the objectives at hand, different replication mechanisms are perceived to have different types of benefits.
Source: EDHEC-Risk Institute
March 28, 2012--The independent rating agency Hoppenstedt gave Deutsche Börse Commodities GmbH a rating of "excellent creditworthiness". The rating agency awarded the company a score of 1.7 points on a scale of 1 to 6. The score reflects factors such as equity ratio, debt structure and operating margin.
“We are pleased to be awarded this score by an independent rating agency and feel this confirms our excellent business model,” said Martina Gruber, managing director at Deutsche Börse Commodities GmbH. “The joint venture Deutsche Börse Commodities is owned by seven strong partners, including Deutsche Börse. Xetra Gold, the bearer bond physically backed 100% by gold, is our sole business objective, meaning investors will hardly find more security anywhere.”
Source: Deutsche Börse Commodities
March 27, 2012--Euro area finance ministers meeting this week need to boost the firepower of the European stability funds to at least one trillion euros, OECD Secretary-General Angel Gurría said today.
The current level of commitment to the rescue funds is not enough to restore market confidence, he said. A credible financial firewall will provide governments with the breathing space they need to focus crucially on revitalising Europe’s economic growth and competitiveness.
Source: OECD
