News
ESMA Proposes Mandatory Clearing for FX Non-Deliverable Forwards
The European Securities and Markets Authority is seeking input on its plans for mandatory central counterparty clearing of foreign exchange non-deliverable forwards (FXNDF). FXNDFs are cash-settled foreign exchange forward contracts that cannot result in physical delivery of the designated currencies at maturity. FXNDFs allow hedging of currencies where government regulations restrict foreign access to local currency or the parties wish to compensate for risk without a physical exchange of funds.
FSB Proposes New Framework for Haircuts on Non-Centrally Cleared Securities Financing Transactions
“Securities financing transactions such as repos are important funding tools for a wide range of market participants, including non-bank financial firms. The implementation of the numerical haircut floors on securities financing transactions will reduce the build-up of excessive leverage and liquidity risk by non-banks during peaks in the credit and economic cycle. It will be important for the FSB to monitor the impact of the framework following the implementation to help ensure that it achieves these objectives.”
— Daniel Tarullo, Chairman of the FSB Standing Committee on Supervisory and Regulatory Cooperation
Shadow Banking Remains on the FSB Agenda
Following its September meeting in Cairns, the Financial Stability Board (FSB) has published a press release highlighting some of the vulnerability the FSB still sees as threatening the global financial system. The release also lays out some work plans for some of the FSB’s ongoing core financial reform efforts, including the area of shadow banking.
UK’s Financial Reporting Council Issues New UK Corporate Governance Code
The Financial Reporting Council (FRC), UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment, has issued a revised UK Corporate Governance Code. The changes to the Code are designed to strengthen the focus of companies and investors on the longer term and the sustainability of value creation. One aspect of this refocusing is shareholder engagement. The revised code seeks to ensure better communication between boards and shareholders by improving disclosure and transparency on proxy voting issues.
Forex Becomes the Focus of Global Investigations
Amid allegations of widespread collusion and corruption amongst forex traders, regulators all over the globe have launched investigations in to the the lucrative $5.3 trillion daily foreign currency exchange market. With British firms handling 41% of all currency trades, London is the focus of many of these investigations. In contrast to other financial scandals like the LIBOR rate scandal, forex trading firms have taken an active self-policing role and launched internal investigations of their own, with at least 20 forex traders being suspended or terminated as a result. Royal Bank of Scottland, UBS, RBS, Citigroup, Deutsche Bank, JPMorgan, Goldman Sachs, and Lloyds Banking Group have all vowed to assist regulators in investigating wrongdoing, and 10 banks have handed forex trading data to the Financial Conduct Authority (FCA). In addition, each has instigated new internal policies aimed at preventing collusion amongst currency dealers at rival firms.
List of Open Consultations and Rule Proposals
With the November 15 and 16 G20 Summit in Brisbane fast approaching, policy makers and regulators in the US and the UK have been hard at work. Not to be outdone, IOSCO, ESMA, and BIS have also been busy. Eager to demonstrate progress on financial re-regulation and reform, there has been a flurry of consultation papers and rule proposals at all levels over the past quarter. The following is a list, current as of October 9, 2014, of some of the more noteworthy proposals and consultation papers whose comment periods are currently open. It should be noted that a number of these consultations close imminently.
Trends in Foreign Exchange and Money Markets
Since the financial crisis, both FX and money markets have undergone significant changes, driven primarily by increased self-regulation and the introduction of broad-ranging regulatory changes on both sides of the Atlantic. Peter Zöllner, the Head of the BIS Banking Department, has been keeping a close eye on these changes, and took the opportunity during the March 29, 2014 ACI Financial Markets World Congress 2014 in Berlin to update his audience on some of the major recent trends in the FX and money markets.
Bank Directors May Find Themselves With a Heightened Standard of Care
While regulators should have clear expectations for boards, we need to make sure that we are creating expectations that lead to boards spending more time overseeing . . . risk-management and control functions . . . A recent address by Federal Reserve Governor Daniel...
Could Redemption Gates Actually Encourage Runs on Funds?
Under rules recently finalized by the SEC, all money market funds will be permitted, and under some circumstances required, to impose liquidity fees and gates against investor redemptions if the fund’s weekly liquid assets fall below specified thresholds. In their release, the SEC said the purpose of these new rules is to mitigate money market funds’ susceptibility to heavy redemptions and improve their ability to manage and thwart possible contagion from redemptions.
What’s in a Name? Would a Derivative by Any Other Name Smell As Sweet?
“The different approaches to the interpretation of MiFID I across Member States mean that there is no commonly-adopted application of the definition of derivative or derivative contract in the EU for some asset classes. Whilst this issue has in the past been noted as a concern since the implementation of MiFID, the practical consequences have come to the forefront with the implementation of the European Markets Infrastructure Regulation (EMIR).”