Tuesday 29th July 2014
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TICKER: MONDAY July 28th 2014: The Union Bank of the Philippines (UBP) released a 49% drop in net earnings in the first half of 2014, as it came in to just PHP3.2bn, almost half of its net earnings in the same period last year. In the April to June period alone, net income fell 36% from PHP2.18bn in the second quarter of 2013 to PHP1.6bn in the second quarter of 2014. However, it is important to note that net interest income grew by 29% year-on-year, as it came in at PHP5.2bn in the half of 2014 – Rangold chief executive Mark Bristow will present the firm’s Q2 results at noon on Thursday this week at The Forum, London Stock Exchange Around 10.00 am today some traders on Moscow Exchange’s Derivatives Market reportedly experienced difficulties entering orders via the FIX protocol, with some valid messages rejected with an error code. The FIX protocol has been functioning as usual since 11:37 am says the exchange. Moreover, the exchange stresses other protocols to access the Derivatives Market’s trading system have been functioning as usual - Société Générale Securities Services in Luxembourg has been mandated by wealth manager Bedrock, with $6bn in assets under management, to provide custody, fund administration and registrar services for its range of UCITS funds - Moody's Investors Service has assigned a first-time provisional (P)B3 corporate family rating (CFR) to Empik Media & Fashion SA Group. At the same time, Moody's has assigned a provisional (P)B2 rating to the firm’s proposed senior secured notes due 2019 to be issued at EM&F Financing AB, a wholly owned and guaranteed subsidiary of EMF, reflecting its overall ranking within the debt capital structure. The outlook on the ratings is stable. This is the first time Moody's has assigned ratings to EMF - Lithuania will adopt the euro on January 1st next year. Lithuania will become the 19th member state to adopt the euro. "Lithuania's consistent efforts have paid off: today the eurozone has opened the door for us," said Algirdas Butkevičius, prime minister of Lithuania, on the announcement. The entry of Lithuania into the euro family is of great importance for the whole euro area. "It's a demonstration of the continuing attractiveness of the single currency project and its relevance for the future of our community," added Sandro Gozi, State Secretary for European Affairs of Italy and President of the Council of the EU. The conversion rate has been set at 3.45280 Lithuanian litas to the euro – Global macro hedge fund manager Atreaus Capital is now live with SunGard’s Hedge360 Risk Reporting Service. Delivered as a managed service, the Hedge360 Risk Reporting Service provides highly customized daily risk reports, offering transparency to investors and integrated internal risk management to hedge funds. Trading a broad range of products with an emphasis on FX and commodities, in the form of both OTC derivatives and futures - AnaCap Financial Partners LLP, the specialist European financial services private equity firm, together with HIG and Deutsche Bank, have completed the acquisition of a €495m portfolio of non-performing and sub-performing loans from Volksbank Romania. Under terms of the agreement, funds advised by AnaCap will jointly acquire the entire portfolio with HIG and Deutsche Bank. The portfolio of 3,566 loans in total is backed by a mix of primarily residential, commercial real estate and development land. APS Romania will be appointed as Master Servicer. The transaction is the largest of its kind in Romania to date, and came about as a result of the ongoing pressure on financial institutions across Europe to restructure and divest assets in order to clean up balance sheets and comply with new capital requirements. After a prolonged correction following the financial crisis, the property market in Romania is now showing strong signs of improvement. GDP and unemployment have recovered on the back of labour market reforms in 2011 and an IMF financing package. House prices, which declined 38% since their peak in mid-2008, are now on the rise, with the areas surrounding central Bucharest and other main cities increasing 4% for 2013.

New report says Asian OTC derivatives reform continue challenging for the buy side

Wednesday, 07 December 2011
New report says Asian OTC derivatives reform continue challenging for the buy side New Celent report looks at OTC derivatives market conditions in Asia, traded volumes, and structure, and the impact of regulatory changes on the segment. http://www.ftseglobalmarkets.com/

New Celent report looks at OTC derivatives market conditions in Asia, traded volumes, and structure, and the impact of regulatory changes on the segment.

The leading Asian economies have been active in their quest for more centralised clearing in the over-the-counter (OTC) derivatives markets. Japan and Singapore have taken the lead in setting up clearinghouses to deal with OTC derivatives such as credit default swaps and interest rate swaps, according to a new report, OTC Derivatives Reforms in Asia: Challenging for the Buy Side, from Celent, a Boston-based financial research and consulting firm.

The Asian central clearing model is slightly different than models in the US and Europe. In those markets, there are norms for the trading of standardised OTC products. There too, it is expected that trading will take place on regulated platforms and that CCPs will undertake the clearing for such trades. In Asia, however, there are no regulations governing the move of trading to regulated platforms, and trading is still expected to happen in a bilateral manner. In that context: “There are doubts over the sustainability and viability of central clearing in Asia, because there is a great deal of fragmentation,” says Anshuman Jaswal, Celent senior analyst and author of the report. “The existence of multiple jurisdictions could lead to regulatory arbitrage.”

The share of the Asian OTC derivatives market in global notional outstanding is around 15% for both OTC equity derivatives and interest rate swaps. It is only 2% for credit default swaps (which are not very popular in Asia) and 26% for OTC FX derivatives, with Japan contributing a majority of this volume.

Among the other findings of the report, it is clear that collateral and margin management will become more complex and expensive. One of the important changes will be the higher cost of collateral management. Right now, bilateral clearing allows the counterparties to decide on the necessary collateral. The mutual understanding and experience of trading with counterparties plays an important part in ensuring that the collateral requirements are not very high. However, it is expected that CCPs would be more conservative in their approach and set higher collateral and margin requirements going forward. Any cross-margining benefits that the larger participants currently derive from trading larger volumes might not carry into the new regime, and CCPs are expected to be more cautious in this regard.

The report also finds that central clearing would lead to significant IT and infrastructure costs. Market participants in leading Asian markets are expected to bear any increase in costs resulting from a move to central clearing. Certainly, connectivity requirements are going to increase and it is going to be difficult for the smaller buy side firms and regional banks to create and maintain the infrastructure required to trade in the OTC markets. “It is expected that the leading sell side firms will try to meet the buy side requirements by providing this infrastructure as an additional service that would resemble the connectivity they provide for exchange-based trading and post-trading services. Besides clearing, in most instances, connectivity would be required to the trade repositories that are expected to improve the post-trade transparency across these markets,” says the report.

Moreover, the report suggests that CCP clearing will invariably become a revenue-generating opportunity for clearinghouses and clearing brokers in the global markets. However, this might not be the case in Asian markets because the volumes in a number of these markets are not significant. There are also some doubts voiced in the report over the sustainability and viability of central clearing in Asia, because there is a great deal of fragmentation. One or two clearinghouses would be ideal for such a scenario, but the existence of different CCPs in each national market means higher costs for firms that are trading in more than one market because they have to create a separate infrastructure in each market.

The report mentions the obvious benefits of the introduction of central clearing, such as improved risk management and efficiency benefits. Once the infrastructure is ready and clearing is taking place on an ongoing basis, risk management and efficiency are going to improve for the OTC derivatives markets. Clearinghouses performed well during the financial crisis, and it is expected that central clearing will perform in a similar fashion. Additionally, Portability will be an important aspect of central clearing. A crucial aspect of the strategy to reduce systemic risk has to be the mechanism to cope with a clearing member's default. This can be done through portability, which allows a market participant to move their trades from a defaulting clearing member to another clearing member, thereby ensuring continuity and reducing systemic risk. While it plays a vital role, portability has complications. In markets where the mechanism has been provided, there would still be the added complication of ensuring it works even under stressful market conditions, such as a broker default.

There is, however, a possibility that regional and global players that operate across a number of markets would choose to move their OTC business to markets with the least regulation and lowest collateral and margin requirement costs. This would be undesirable for both the market that loses the business and the market that gains it. The market that loses business might not be able to sustain its CCP due to low volumes. The market that gains the business might have artificially high volumes and therefore would have more complex issues with regard to systemic risk in case of a default by a clearing member or even a CCP. Multiple markets with CCPs also mean that the jurisdictions will have to address extra-territoriality and interoperability issues that will arise.

It is a sensitive time for the OTC derivatives segment as it undergoes change. While volumes in the global OTC derivatives market have recovered from the lows of 2008, the move to central clearing is expected to lead to a dip in volumes globally for the next couple of years. Volumes are expected to fall in 2012 and 2013, with the recovery beginning in 2014.

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