Thursday 26th May 2016
NEWS TICKER: THURSDAY, MAY 26TH - Moody's has upgraded to A3 from Baa1 the senior unsecured debt ratings of Autoroutes du Sud de la France (ASF). Concurrently, Moody's has upgraded to (P)A3 from (P)Baa1 the rating on the company's €8bn medium-term note (EMTN) programme. The outlook on the ratings is stable. The upgrade reflects ASF's strengthening financial profile on the back of a strong traffic performance and expected future traffic growth, says the ratings agency. ASF is expected to exhibit funds from operation/debt metrics firmly in the mid-teens in percentage terms, which Moody's considers commensurate with the A3 rating level. In 2015, ASF reported traffic growth of 3.1% compared to the previous year. “We expect traffic growth to moderate during the year, although the 2016 annual traffic increase is anticipated to be at least 2%. The positive traffic trends, which offset the financial impact of the 2015 tolls freeze and the relatively limited toll increases in 2016(1.63% for ASF and 1.18% for Escota), are supportive of ASF's credit profile in the context of the group's increasing investments associated with the implementation of the so-called Plan de Reliance Autoroutier (a government stimulus plan),” says Moody’s. ASF is expected to implement capital expenditure worth €800m per annum over the next three years - The European Parliament has approved aid on Thursday worth €6,468,000 for 557 redundant workers from the “Larissa” supermarket in Greece and €5,146,800 for 2,132 former drivers for the road haulage and delivery firm MoryGlobal SAS in France. The European Globalisation Adjustment Fund (EGF) aid will still need to be approved by the Council of Ministers on June 6th. In Greece, Larissa’s 422 employees and 135 worker-owners were made redundant when the cooperative supermarket was declared bankrupt. In France, MoryGlobal’s 2,132 lorry drivers and their delivery colleagues lost their jobs due to its bankruptcy and closure. Both bankruptcies resulted from the prolonged global financial and economic crisis which has devastated the Greek economy and deeply affected the road haulage sector. The measures, co-financed by the EGF and the Greek and French governments, would help the workers to find new jobs by providing them with occupational guidance and other assistance schemes. The aid request from France was passed by 540 votes to 73, with 2 abstentions. The request from Greece was approved by 551 votes to 67, with two abstentions. The European Globalisation Adjustment Fund (EGF) was introduced in 2007 as a flexible instrument in the EU budget to provide support, under specific conditions, to workers who have lost their jobs as a result of mass redundancies caused by major changes in global trade (e.g. delocalisation to third countries). The EGF contributes to packages of tailor-made services to help redundant workers find new jobs. Its annual ceiling is €150m. Redundant workers are offered measures such as support for business start-ups, job-search assistance, occupational guidance and various kinds of training - Pirum Systems says Ben Challice will be joining as chief operating officer, responsible for strategic product and market development. Challice joins from Nomura, where he headed up Global Prime Services – which included Equity Finance, Prime Brokerage and Delta One at Nomura and previously held senior positions at Lehman Brothers and Goldman Sachs - Catella has appointed Antti Louko to head its Finnish operations and to establish a new corporate finance unit in Helsinki. Louko will join Catella as managing director of Catella Property Oy and head of the new corporate finance unit, from November. Louko joins Catella from a role as head of real estate at Advium Corporate Finance Oy where he headed the real estate team. He previously worked as the director responsible for transactions at SRV Group, and at Aberdeen Property Investors - Advanced payments tech firm SafeCharge says Umberto Corridori has been appoint vice president of sales for Europe. Corridori has held senior roles in large companies such as Dell Italy and joins after a long tenure at PayPal where he served as head of sales Italy & iGaming CEMEA - AIM-listed Xtract Resources PLC says it has entered into an agreement to sell the Manica Gold project in Mozambique to Nexus Capital and Mineral Technologies International Ltd for $17.5m in cash. The firm says some of the proceeds will be used to settle outstanding payments owed to Auroch over the acquisition of the Manica licence. Xtract adds that it expects to have remaining cash proceeds of approximately $12m. Under the agreement, Xtract will sell its 100% interest in Explorator Limitada, the entity which holds title to the Manica mining licence 3990C on completion of the deal. Xtract said it is expected that a bankable feasibility study, to assess the viability of developing and mining a hard rock gold deposit identified within the Manica licence, will be completed in the second quarter of 2016, Mine construction is planned to begin in the fourth quarter, with first production to follow in the final quarter of 2017. Mining of the alluvial gold deposit is planned for the third quarter this year – The European Bank for Reconstruction and Development (EBRD) is providing up to €294m in local currency equivalent for two ground-breaking projects to increase the use of domestically produced natural gas and largely replace the use of coal in Kazakhstan. The first project is the upcoming modernisation and refurbishment of the underground storage in Bozoi in the Bank’s first-ever cooperation with the national gas company KazTransGas (KTG). An EBRD loan equivalent to €242m in local currency to the KazTransGas subsidiary Intergas Central Asia will allow for the upgrade of the storage to its full capacity of 4bn cubic metres (bcm), from the current limit of 2.6 bcm - United Utilities reported a 0.6% rise in full year revenue to £1.73bn this morning, although the new regulated price controls contributed to a 9% drop in underlying operating profit to £604m. The company says it is confident of reaching its targets for capital expenditure in the first year of the new regulatory period and announced plans to invest £100m across the 2015-2020 period in renewable energy projects, mainly solar power. The final dividend was raised 2% to 25.6p, making a total of 38.45p for the year – Ahead of its planned initial public offering in Australia, fantasy sports app Sports Hero has raised an additional $2.4m in funding. SportsHero is a new app that lets sports fans dabble in match predictions and show their skills off against friends and other game-watchers. The app is made by the team behind Singapore-based TradeHero, a virtual trading app backed by more than $10m from investors. - DONG Energy has set an indicative price range for its planned stock market listing of 17.4% of its shares at DKR200 to DKR255 per share, giving the group a market value of DKR83.5bn to DKR106.5bn ( between $12.6bn and $16bn), making it Europe’s biggest float this year. The state-controlled company, is one of the world’s largest offshore wind farm developers -

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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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