NAVIGATING REGULATION
ACI Moscow
17th March 2011
Robin Poynder, Head of FX & Money Markets, EMEA
G20 RECOMMENDED REGULATORY CHANGES
In September 2009 the G20 recommended reforms to address the concerns
raised during the Credit Crisis, with an end 2012 deadline for implementation
•
G20 aim was to reduce counterparty risk, operational risk and systemic risk within
the financial markets, and in particular in OTC derivatives trading
The G20 reforms look to have the following impact
A change to the OTC Derivatives trading workflow:
•
Derivatives trades need to be cleared through a central counterparty (CCP): non
cleared trades will incur additional capital charges and must be mark-to-market daily
•
These cleared trades need to be executed on an exchange or regulated trading
platform (SEF in US, MTF or OTF in Europe) with focus on multi-quote,
transparency, efficiency
•
Customers must understand regulatory status of trading counterparty i.e. their
clearing / reporting obligation
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CONFIDENTIAL
G20 RECOMMENDED REGULATORY CHANGES
Continued…
An increase in transparency
•
Report executed trades to a Trade Repository
•
Provide aggregated view of derivatives trading
Greater supervision of banks
•
Basle III increase in capital and liquidity requirements
•
Additional rules for organizations deemed “systemically important”
Other areas under scrutiny
•
Limiting proprietary trading, commodity trading, high-frequency trading, short
selling, dark pools
•
More focus on Hedge Funds, Private Equity Funds, and credit rating agencies
CONFIDENTIAL
KEY CURRENT REGIONAL REGULATIONS
Although there is widespread agreement on the need for consistent application of
financial regulations, regulations differ by geography and instruments, with different areas
of focus and requirements to comply, including varying enforcement timescales.
USA
EUROPE / UK
ASIA
Passed Dodd Frank Act in July 2010:
Still drafting its legislation:
No consensus view across region:
•
Regulators SEC and CFTC given ~360
days to turn this legislation into rules
•
•
Additional to G20: requiring banks to
spin off some derivatives trading
(Lincoln amendment), barring
proprietary trading and curbing
involvement in private equity and hedge
funds (Volcker Rule) and restricting
ownership of trading platforms and
clearing houses (Lynch amendment)
• Japan and some others are looking to
comply with G20 around the clearing
requirement
• Other countries may look to take
advantage of an alternative regulatory
environment and so are in “watching”
mode
•
European Market Infrastructure
Regulation (EMIR) published15 Sept
2010, the Capital Requirements
Directive (CRD IV) and MiFID II
published 8 Dec 2010. Newly
created regulator ESMA (European
Securities Market Authority)
responsible for implementation
Additional to G20 to date: increased
transparency requirements for all
assets, best execution, HFT, taxing
banks (UK specific)
Global
IOSCO (International Organisation of Securities Commissions):
Consistent international standards across OTC derivatives regulation in trading, data reporting, clearing and oversight (Jan.
2012)
•
OTC Derivatives Task Force set up to develop consistent global standards through a number of deliverables
•
Exchange and Electronic Platform Trading (Jan 2011)
•
Data reporting and Aggregation requirements (July 2011)
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FINANCIAL REGULATORY REFORM:
POTENTIAL IMPACT TO YOUR BUSINESS MODEL
KEY ISSUES
Transparency
Change to
Workflow
AREA
• Derivatives trades to be cleared through a central
counterparty (CCP)
• Cleared trades to be executed on an exchange or
regulated trading platform
• Proposed changes to investment stakes in trading
platforms
• Independent Pricing and Reference Data from
fragmented trading venues
• Know Your Counterpart to optimize pricing and
trading decision
• Providing aggregated view of derivatives trading
• Efficient connectivity and reporting to meet
clearing and reporting regulatory obligations
• Risk and Compliance can no longer be managed
in silos
• Credit exposure measurement and management
POTENTIAL CHANGES/IMPLICATIONS
• Identification of where, how and with whom you
trade at point of pricing
• Enable confirmation and connectivity to clearing
• Impact on market liquidity from increased
transparency/ fragmentation and increased capital
costs
• Obligation to price to wider market at time of
customer pricing
• Regulatory impact on Single Bank Portal
• Impact of trades executed by sales desks
• To satisfy regulator/shareholder demands for price
valuation transparency and identify their counterparties to
comply with Crime and Fraud Prevention
• Enable connectivity to provide reporting of all trades to a
Trade Repository
• Enable customers to gain a real time view of their total risk
position, at a given point in time, to a client, client group,
sector and geography
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THANK YOU
Robin Poynder, Head of FX & Money Markets, EMEA
[email protected]