Margin and collateral
EMIR Phase 1 go live on 4 Feb: EU and Swiss banks
where aggregate month-end average notional amount (AMEANA) is > €3 trillion over
a three month period must start posting IM and VM for non cleared derivatives on 4 February.
The industry is working
hard to ensure
necessary revisions to legal documents are updated in time.
Variation Margin (VM) go-live on 1 Mar: all FC and NFC+ counterparts (and their
equivalents in US) will start
posting VM bi-laterally from 1 March. Capturing a much larger population than IM, there is
concern that industry will not be ready with the required legal re-papering. See
recent notice from ISDA here on the
CFTC comment: whilst nothing is firm yet, acting Chairman to the CFTC
Chris Giancarlo has
recognised that the 1 March deadline is unrealistic, and is considering transitional
measures, following the steps taken in Singapore, Hong Kong & Australia.
There has been no equivalent statement from European regulators however.
The EU’s Dodd-Frank: MiFID II emulates the US rules by introducing new
trading venues and obligations, price discovery mechanisms, heightened controls
over automated trading and a higher standard of governance and control. Going
live in Jan 2018, it will be a key focus for many EU firms during 2017 given the
Uncertainty reigns: despite the imminent timing, there remain many
unknowns in the rules which will consume regulators’ time and make for difficult
implementation for buy and sell-side firms.
Dodd Frank mandatory clearing: from 13 Dec 2016 additional products were
mandated to clear under Dodd Frank as part of the
expansion of the clearing
mandate. IRS in AUD & MXN facing US Persons are to be cleared, aligning DF to
the roll-out of clearing in other jurisdictions.
EMIR mandatory clearing: from 9 Feb EMIR mandatory clearing starts for
IRS in additional EEA currencies (SEK, PLN, and NOK) and CDS for Cat 1
counterparties (clearing members). This follows on from start of clearing for G4
IRS for Cat 2s last December. G4 IRS clearing for Cat 3s is expected to be
delayed by 2 years to Jun 2019, though this is yet to be confirmed by European
Council & Parliament.
12 month delay confirmed: the delay was
formalised in December 2016,
however there continue to be issues with the implementation detail. The
insurance regulator EIOPA rejected the proposed amendments from the EC, meaning
implementation standards are still several months away.
New Market Risk measures: The Fundamental Review of the Trading Book or
FRTB will overhaul market risk capital measures, to better reflect the actual
market risk in trading books. New concepts of ‘modelable’ or ‘non-modelable’
instruments provide for higher capital charges for instruments that are more
complex, and more illiquid.
Greater granularity: Internal models must be approved at individual desk
level, so new processes and IT will demand significant management time over the
coming two years.
CVA impact: FRTB will also change the CVA (credit valuation adjustment)
charges, although the final rules are expected to be confirmed in the next
few months. CVA adjusts the fair value of derivative instruments to account for
counterparty credit risk. The resulting charge is designed to capitalise the
risk of future changes in this valuation.
Basel Rules postponed: BCBS’ plans to finalise Basel II capital
dashed as bank supervisors could not agree on the final rules.
A key area of contention is capital floors, limiting the benefits of banks using
internal capital models over a standardised approach.
CCR Own Funds relief: the EC confirmed a 6 month extension of the
transitional period related to own-funds requirements for exposures to non
EC-qualified CCPs. This is due to the EC not being finished in their recognition
process of 3rd country CCPs.
Debt Capital Markets
Revised Prospectus Rules: the Council
concluded a provisional agreement
with representatives of the European Parliament on new rules on prospectuses for
the issuing and offering of securities. Part of the EU’s Capital Markets Union
plan, the draft rules will replace the current EU Prospectus Directive, and are
aimed at simplifying the rules and administrative obligations for companies
wishing to issue shares or debt.
Securitisation: ECON MPs
approved a proposal that would require one of
the parties to the transaction to be a regulated entity and the possibility of
the risk retention levels for originators increasing to 20% in certain
instances, decreed by the EBA.