Sunday, May 21, 2017

CFTC Chair Highlights Effect of Regulation on Liquidity

Urges Regulatory Recalibration and More Comity

Author: David Schwartz

In a May 10, 2017 address, acting Chairman of the Commodity Futures Trading Commission (CFTC)  J. Christopher Giancarlo highlighted some unintended consequences regulation is having on the swaps markets. In his speech before the International Swaps and Derivatives Association 32nd Annual Meeting in Lisbon, Portugal Giancarlo talked about the changes to swaps trading liquidity, market fragmentation and regulatory comity in the post-reform global swaps markets. After providing an overview of how some aspects of the misapplication and miscalibration of regulatory reforms were harming global liquidity, he provided some astute observations on how to alleviate some of the harm being done to swaps markets in particular. 

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Thursday, January 28, 2016

OFR Report Highlights Unintended Consequences of Swaps CCPs

Author: David Schwartz

On January 27, 2016, the Office of Financial Research (OFR), an arm of the Treasury Department created under the Dodd-Frank Act, issued its fourth annual report to Congress. The report highlights the results of OFR research, risks to financial markets, and OFR priorities for the coming year. Notable among its findings, the report suggests that reforms mandating central counterparties in the formerly OTC swaps market could unintentionally increase systemic risk in the long run rather than reducing it.   

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Tuesday, December 1, 2015

Swap Dealers Sued as Monopolists

Author: David Schwartz

On November 25, 2015, the Chicago Public School Teachers’ Pension and Retirement Fund and other institutional investors filed a class action lawsuit in federal court alleging that ten of the world’s largest investment banks conspired to rig the lucrative interest rate swaps market.  The suit filed in the U.S. District Court in Manhattan accuses the investment banks of violating federal antitrust laws by colluding to create an anti-competitive stranglehold over the market for interest rate swaps for their own profit.  Plaintiffs say the ten defendant banks, Goldman Sachs Group, Bank of America Merrill Lynch, JPMorgan Chase, Citigroup, Credit Suisse Group, Barclays Plc, BNP Paribas SA, UBS, Deutsche Bank AG, and the Royal Bank of Scotland worked together to prevent the trading of interest rate swaps on electronic exchanges, creating a monopoly, and extracting millions of dollars in overpayments from trading clients.

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Friday, July 12, 2013

Board Approval Required to Take Advantage of Swaps End-User Exception

Author: David Schwartz
In their latest client memo, the Blank Rome law firm alerts directors and trustees of financial firms about their role in new swaps regulations.  In particular, the firm puts public companies on notice that their boards must take action in order to take advantage of the CFTC's end-user exception.   The end-user exception for swaps frees certain swaps transactions from the new requirement that all swaps be centrally cleared.
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Tuesday, April 2, 2013

CFTC Finalizes Important Exemption for Inter-Affiliate Swaps

Author: David Schwartz
The Commodities Futures Trading Commission may have chosen April Fools' Day to approve an important exemption for inter-affiliate swaps transactions, but exemption is no joke. It provides some much needed relief from a perceived flaw in the new swaps regime under Dodd-Frank. The Dodd-Frank legislation amended the Commodity Exchange Act to require clearing of any and all swaps the CFTC determined should be subject to mandatory clearing, but provided no exemption for transactions between affiliates. Inter-affiliate swaps serve some vital business purposes and pose significantly fewer risks than swaps transactions between unaffiliated investors. For this reason, financial institutions have been urging the CFTC to grant them the option to opt out of mandatory clearing requirements for this fairly narrow kind of transactions. Applying the clearing requirement to every inter-affiliate transaction, they argued, made little sense under the circumstances, and thus was an unnecessary burden. The CFTC obliged initially with some temporary exemptive orders, and in August 2012 proposed to make this temporary relief more permanent. On April 1, 2013, the CFTC approved an order making the previously temporary relief permanent.
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