FMX | Connect – www.fmxconnect.com - (Reported 9/27/2010)
Exchange Sector Review - Week ending September 17, 2010
This week:
The sector was up 300bps, outperforming global equities by 100bps. Interdealer brokers were down -100bps. YTD the sector is underperforming global equities by 403 bps.
CME sent a letter to the CFTC denying that it breaches antitrust rules by accepting EFF trades from ELX customers as the “enforcement of its rules cannot be the foundation for an antitrust violation” (CBOT rules consider EFF trades as wash trades). CME also mentioned that during periods of market stress (like the May 6th flash crash and the period surrounding the release of economic reports) liquidity “vanishes” from ELX and traders have to rely on CME’s liquidity (see CME’s letter attached).
CFTC Chairman Gary Gensler said at an ISDA conference last Thursday that the Commission estimates that “there could be in excess of 200 entities that will seek to registers as swap dealers”. The estimates include divisions spun-off from banks to meet Volker Rule requirements, non-bank swap dealers and other market makers wishing to become swap dealers. Mr. Gensler also expects between 20 and 30 new entities registering as Swap execution Facilities (SEFs) or Designated Contract Markets (DCMs), based on the enquires about converting to a SEF received by the CFTC. Those inquiring include interdealer brokers, swap dealers, platform providers and information vendors. The forceful clearing requirement will also spark an increase in registered derivatives clearinghouses, which Gensler expects to increase from 14 currently to 20.
The CFTC plans to assign a unique ID to all swap trades to increase transparency. CFTC’s David Taylor said the Commission is considering assigning three different kinds of unique IDs to all trades (one describing the counterparty, another describing the type of swap and a third assigned each time a swap is initiated). The CFTC also wants to collect data on owners and controllers of all US futures accounts.
The European Commission released this week its proposed regulations for the OTC derivatives market with provisions similar to those recently passed in the US (reducing the possibility of regulatory arbitrage). As in the US, the proposals contemplate exemptions for bona-fide hedgers for activities below a “clearing threshold” which will be determined by the recently created European Securities and Markets Authorities (ESMA) and European Systemic Risk Board (ESRB). ESMA will also decide which OTC derivatives should be cleared. Clearinghouses will also have to secure regulatory approval before entering into any interoperability agreement in order to avoid exposing CCPs to additional risks.
Source: ERDESK
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