Monday 30th March 2015
NEWS TICKER: MONDAY MARCH 30th 2015 : According to LuxCSD several unions in Argentina have called for a strike on tomorrow. It is still not known whether the Central Bank of Argentina, Caja de Valores as Central Depository and/or the Argentine Stock Exchange will adhere to this strike, and of the possible impact on settlement and cash operations. Citi, which is LuxCSD’s custodian, will be keeping the securities depositary updated on developments. LuxCSD says its customers are advised to take into consideration the possibility of disruption and delays in the settlement and cash processes - Capital Intelligence (CI) has affirmed Bahrain's Long-Term Foreign and Local Currency Ratings of 'BBB' and its Short-Term Foreign and Local Currency Ratings of 'A2'. The Outlook for Bahrain's ratings was revised to 'Negative' from 'Stable'.Deterioration in the public finances in view of the country's dependence on declining oil revenues, in addition to continued increase in debt levels. b) Deterioration in current account position in view of the decline in the value of oil exports, which limits the country's shock absorption capacity. Reflecting rising public expenditure and declining international oil prices, the budget deficit is expected to have doubled to 6.8 per cent of GDP in 2014 and is on course to exceed 12 per cent in the coming years, assuming no change in key policies and an average oil price of $50 per barrel in 2015-16. The central government budget structure remains weak in view of the lack of diversification of government revenue (oil accounts for around 88 per cent of central government revenue), and the absence of fiscal consolidation measures in view of the polarised political climate. Spurred by growing deficit, central government debt level continued its increase reaching 47.1 per cent of GDP in 2014, compared to as low as 21.4 per cent of GDP in 2009, while it is expected to top 69.2 per cent of GDP in 2016. Gross financing needs are also expected to increase to a still manageable level of 18.5 per cent of GDP in 2016, compared to 7.5 per cent of GDP in 2013 - French operator Bouygues Telecom says it will roll out one of the first implementations of LoRa low-power WAN technology, designed specifically to support the Internet of Things (IoT) connectivity, in France by June. The underlying technology was developed by French company Cycleo. The purpose of an IoT-specific wireless networking technology is primarily to be as low-power as possible. Many IoT implementations will be industrial, embedded use-cases where replacing power sources is expensive and impractical. Bouygues has been trialling LoRa in Grenoble since 2013 and expects 500 towns and cities to be covered by year end. KPN, Swisscom, Belgacom and Fastnet are also reported to be ready to deploy LoRa networks or carrying out large-scale trials. “The Internet of Things is going to transform entire areas of our economy, says Olivier Roussat, Chairman and CEO of Bouygues Telecom in an official statement - Moody's has today assigned a Baa2 long-term rating to the new hybrid securities issued by Bayer AG. The rating outlook is stable. The rating of Baa2 is two notches below Bayer's A3 senior unsecured rating. This reflects the deeply subordinated ranking of the new hybrid securities in relation to the existing senior unsecured obligations of Bayer or those issued by its subsidiaries and guaranteed by Bayer. The new hybrid securities will be senior to common shares - The Straits Times Index (STI) ended +4.16 points higher or +0.12% to 3454.26, taking the year-to-date performance to +2.65%. The FTSE ST Mid Cap Index gained +0.10% while the FTSE ST Small Cap Index gained +0.03%. The top active stocks were SingTel (-1.13%), UOB (-0.13%), DBS (+0.30%), Global Logistic (+0.76%) and CapitaLand (+1.39%). The outperforming sectors today were represented by the FTSE ST Consumer Goods Index (+0.89%). The two biggest stocks of the FTSE ST Consumer Goods Index are Wilmar International (-0.61%) and Thai Beverage (+3.36%). The underperforming sector was the FTSE ST Telecommunications Index, which declined -1.05% with SingTel’s share price declining -1.13% and StarHub’s share price declining-0.23%. The three most active Exchange Traded Funds (ETFs) by value today were the DBXT S&P/ASX 200 ETF (unchanged), STI ETF (unchanged), DBXT FTSE Vietnam ETF (+1.19%) – The Singapore Exchange (SGX) says that UOB Bullion and Futures Limited (UOBBF) has joined as a trading member of its securities market. Chew Sutat, head of sales and clients, SGX says the membership enables UOBBF to offer “another product class to their regional clients, thus adding to liquidity in the securities market. We also look forward to working with UOBBF to bring their existing derivatives customers to all our markets. As an SGX Securities Trading Member, UOBBF will be able to offer equity trading services to institutional clients, and accredited and expert investors. SGX now has 27 trading members and 26 clearing members - Taking their cue from the positive tone in Wall Street on Friday, major Asian equity markets were firmer today favoured by market expectations for the adoption of further policy stimulus by Chinese authorities to support domestic economic activity. Elsewhere, US Treasuries were modestly firmer in early trade on Monday while the FOMC Chairman’s mildly hawkish remarks assisted the USD to move higher says Eurobank’s mid-morning markets review. According to the bank discussions between Greek authorities and the Brussels Group on a fully-costed list of reforms the Greek side submitted late last week are reportedly expected to continue on Monday for the third consecutive day. Local press reports suggested today that a number of issues still remain open. On the latter, local newswires quoted an unnamed high level euro area official as saying that the Euro Working Group will likely assess Greece’s reform proposals later this week (reportedly on Wednesday) but euro area finance ministers are not expected to convene before all the details are ironed out. Meanwhile, Prime Minister Alexis Tsipras has reportedly requested an extraordinary plenary session to be held today at 8pm Greek time to inform the Hellenic Parliament about the progress of ongoing discussions with the Institutions - Standard & Poor's revised last Friday the outlook on the Republic of Cyprus sovereign credit rating to positive from stable, affirming the country's B+/B long- and short-term foreign and local currency sovereign credit ratings - Nearly two thirds (61%) of small and medium sized companies who are yet to undertake auto enrolment say they would welcome the publication of a definitive list of pension providers that accept all firms - regardless of size - to help them comply with their auto enrolment duties, according to new research* by workplace pensions provider NOW: Pensions. Of the SMEs surveyed who are yet to stage, two thirds (66%) don’t have any existing pension arrangements for their staff while 8% have a stakeholder pension scheme set up but don’t have any members of staff in it. A quarter already offer a scheme to a proportion of their workforce. When it comes to selecting a pension provider for auto enrolment, over a quarter (27%) of those who are yet to stage still say they haven’t given any thought to how they’ll go about finding a pension provider, down from 44% in 2014**. One in ten (12%) are going to search the market and do the research themselves, up from just 4% of those firms surveyed in 2014. When it comes to seeking external advice, over a quarter (26%) intend to get help from their accountant up from 14% in 2014. One in six (16%) intend to rely on their existing provider, down from 22% in 2014. Just 6% plan to speak to a financial adviser up from 5% in 2014. Morten Nilsson, CEO of NOW: Pensions said: “As smaller companies begin to tackle auto enrolment, the number planning on choosing their pension provider without any advice is inevitably going to grow. “This is why The Pensions Regulator’s (TPR) decision earlier this month not to publish a list of pensions schemes that are directly available to any employer, was so disappointing. The reality is these firms urgently need help to find high quality, low cost providers that are willing to accept their business, and the regulator needs to hear their pleas before it is too late.” - Harkand has secured a multi-million pound contract with Maersk Oil North Sea Ltd for the provision of DSV services in the North Sea region. The 12-month contract will be serviced by Harkand’s two DSVs, the Harkand Da Vinci and Harkand Atlantis, supported by project management and engineering from the firm’s Aberdeen office. The contract covers well tie-ins, structure installation, piling, flexible flow line lay, flexible riser installation, pre-commissioning, riser recovery, decommissioning and general inspection, repair and maintenance (IRM) work. Harkand Europe managing director, David Kerr explains, “This contract win is a further acknowledgment, not only of the expertise and capacity we have built up within the region, but also the open culture that we have at Harkand. We look forward to delivering a consistent and cost efficient service to Maersk, which is especially critical in today’s business environment. By utilising both our sister DSVs, we will provide a robust and fully flexible approach to executing both planned and unplanned interventions and we will work closely with Maersk to ensure safe and successful campaigns.” The Harkand DaVinci and Harkand Atlantis are both equipped with state-of-the-art saturation diving systems, 140t active heave compensated cranes and Super Mohawk ROV spreads -Alcatel-Lucent has announced a partnership with China Telecom to roll out the operator’s FDD-LTE services to 40 additional cities across 12 Chinese provinces. The French infrastructure vendor said it is one of three suppliers to have been chosen by the telco, and will provide its LTE mobile ultra-broadband access technology to complete the project.

SEC adopts new rule to define terms related to OTC swaps market

Friday, 20 April 2012
SEC adopts new rule to define terms related to OTC swaps market The Securities and Exchange Commission has unanimously adopted a new rule to define a series of terms related to the over-the-counter swaps market. The rules, written jointly with the Commodity Futures Trading Commission (CFTC), implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that established a comprehensive framework for regulating derivatives. Adopting these entity definitions is a foundational step in the establishment of the new regime to regulate trading in this significant market, says SEC Chairman Mary Schapiro. These rules clarify for market participants whether their current activities will subject them to comprehensive oversight in the coming months. The final rule will become effective 60 days after the date of publication in the Federal Register. http://www.ftseglobalmarkets.com/

The Securities and Exchange Commission has unanimously adopted a new rule to define a series of terms related to the over-the-counter swaps market. The rules, written jointly with the Commodity Futures Trading Commission (CFTC), implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that established a comprehensive framework for regulating derivatives. "Adopting these entity definitions is a foundational step in the establishment of the new regime to regulate trading in this significant market," says SEC Chairman Mary Schapiro. "These rules clarify for market participants whether their current activities will subject them to comprehensive oversight in the coming months." The final rule will become effective 60 days after the date of publication in the Federal Register.

Under the Dodd-Frank Act, regulatory authority over swaps is divided between the SEC and the Commodity Futures Trading Commission (CFTC). The law assigns the SEC the authority to regulate security-based swaps, which are broadly defined as swaps based on a single security or a loan, or  a narrow-based group or index of securities, or even events relating to a single issuer or issuers of securities in a narrow-based security index. The CFTC, on the other hand, has primary regulatory authority over swaps. If adopted, the joint rules would establish which entities involved in the swaps market would be subject to the regulatory regime created by the Dodd-Frank Act.

The joint rules of the SEC and the CFTC define security-based swap dealer and major security-based swap participant as part of the Securities Exchange Act of 1934. In developing these definitions, the SEC staff was informed by existing information regarding the single-name CDS market, which will constitute the vast majority of security-based swaps that will likely fall under SEC jurisdiction. Title VII of Dodd Frank in particular authorises the SEC to regulate security-based swap dealers and major security-based swap participants, and create a system by which they could register with the SEC. Those dealers and major participants also would be subject to several statutory requirements including requirements related to capital, margin, and business conduct.



The Act, which defines the relevant terms, directs the SEC and the CFTC jointly to further define those terms in consultation with the board of governors of the Federal Reserve System. Those terms include swap dealer, security-based swap dealer, major swap participant, major security-based swap participant, and eligible contract participant. In December 2010, the SEC and CFTC proposed joint definitions of those terms. The staff also relied on the dealer-trader distinction, which informs determinations regarding dealer status in the traditional securities market and which already is used by participants in that market.

The new Rule 3a71-1 under the Securities Exchange Act defines the term security-based swap dealer consistent with the criteria set forth in the Dodd-Frank Act as someone who holds themselves out as a dealer in security-based swaps, makes a market in security-based swaps, regularly enters into security-based swaps with counterparties as an ordinary course of business for their own account and engages in activity causing them to be commonly known in the trade as a dealer or market maker in security-based swaps.

Consistent with the statute, the new rule also specifies that the term "security-based swap dealer" does not include a person who enters into security-based swaps for their own account "not as a part of a regular business."

The new rule interprets this definition in a manner that builds on the dealer-trader distinction that already is used to identify dealing activity involving other types of securities, while taking into account the special attributes of security-based swap markets. Further, the SEC would clarify the distinction between dealing activity and non-dealing activity such as hedging.

In addition, the new rule excludes from the dealer analysis (as well as the major participant analysis) security-based swaps between counterparties that are majority-owned affiliates.

The Dodd-Frank Act also directs the SEC to implement a de minimis exception from the "security-based swap dealer" definition for a person who "engages in a de minimis quantity of security-based swap dealing…." It also directs the SEC to establish factors for determining when someone falls within this exception.

The new Exchange Act rule 3a71-2 implements the exception in a way that is tailored to reflect the different types of security-based swaps and to phase in compliance in a way that would promote the orderly implementation of Title VII. For instance, the new rule exempts those entities or individuals who engage in dealing activity in security-based swaps above a certain notional dollar amount over a prior one-year period:

For credit default swaps that are security-based swaps, the de minimis exception in general is available to persons who enter into up to $3 billion in notional CDS dealing transactions over the prior 12 months.
For other types of security-based swaps, this threshold is $150m, reflecting the proportionately smaller size of this part of the market.

The proposed rule had set forth an across-the-board $100m notional threshold. In addition, the new rule sets a different de minimis exception for security-based swaps with "special entities" (as defined in Exchange Act Section 15F(h)(2)(C) to include certain governmental and other entities). For those special entities, the threshold is $25m in notional amount over the prior 12 months. This is consistent with the proposed rule.
Neither limits the number of security-based swaps that a person can enter, nor limits the number of a person's security-based swap counterparties in a dealing capacity. This is in contrast to the proposal.

The new de minimis rule will be phased in over time depending on the level of security-based swap dealing activity in a way that promotes the orderly implementation of Title VII.For credit default swaps, only those entities and individuals who transact $8bn or more worth of CDS dealing transactions over the prior 12 months initially have to register as security-based swap dealers. For other types of security-based swaps, the phase-in level is $400m. These phase-in levels will terminate at a future date after SEC staff completes a report on the security-based swap market; unless the SEC establishes new de minimis thresholds or, absent that, after a period of time specified in the rule.

The SEC's de minimis thresholds were tailored to the specifics of the products and the markets based on analysis of available data. In particular, this analysis highlighted the significant concentration in the single-name CDS market, which is the portion of the CDS market regulated by the SEC. Both the $3bn de minimis threshold and the $8bn phase-in level for CDSs should ensure that the vast majority of notional dealing activity in this market is subjected to the SEC's Title VII dealer regulatory regime, consistent with the statutory de minimis exception.

Similarly, for security-based swaps other than CDSs, the effort was guided in part by data that showed that the size of this market is only a small fraction of the size of the CDS market. Consistent with this difference between these two markets, the new rule sets the de minimis threshold for these security-based swaps at $150m and the phase-in level at $400m.

In establishing who is a security-based swap dealer, Congress gave the SEC the task of identifying those entities that specifically engage in dealing activity in this market. In doing so, Congress did not intend for all or even most market participants who merely engage in security-based swap transactions - such as mutual funds and pension funds - to be regulated as security-based swap dealers. Further, in addition to limiting the pool to just dealers, Congress also sought to have the SEC regulate only those market participants who engage in dealing activity above a de minimis amount. By following Congress's mandate to capture those engaged in dealing activity (even above a certain threshold), the new rule extends the protections of the Title VII dealer regulatory regime not only to regulated dealers but also to their counterparties.
Definition of "Major Security-Based Swap Participant"

The term "major security-based swap participant" is defined by rules 3a67-1 through 3a67-9 of the Securities Exchange Act.

In particular, the Dodd-Frank Act lays out three parts to the definition, and a person who satisfies any one of them is a major security-based swap participant:

A person who maintains a "substantial position" in any of the major security-based swap categories, excluding positions held for hedging or mitigating commercial risk and positions maintained by certain employee benefit plans for hedging or mitigating risks in the operation of the plan.
A person whose outstanding security-based swaps create "substantial counterparty exposure that could have serious adverse effects on the financial stability of the U.S. banking system or financial markets."
Any "financial entity" that is "highly leveraged relative to the amount of capital such entity holds and that is not subject to capital requirements established by an appropriate federal banking agency" and that maintains a "substantial position" in any of the major security-based swap categories.

The statutory definition excludes security-based swap dealers.
Definition of "Substantial Position"

The Dodd-Frank Act provides that the SEC should define "substantial position" at a threshold it deems to be "prudent for the effective monitoring, management or oversight of entities that are systemically important or can significantly impact the financial system of the United States."

Under the new rule, "substantial position" is defined by using objective numerical criteria which promote the predictable application and enforcement of the requirements governing major participants. The new rule utilizes tests that would account for both current uncollateralized exposure and potential future exposure. A position that satisfies either test is a "substantial position." The first "substantial position" test excludes positions hedging commercial risk and employee benefit plan positions from the substantial position analysis.

These tests apply to a person's security-based swap positions in each of two major security-based swap categories: security-based credit derivatives (any security-based swap based on instruments of indebtedness including loans or on credit events relating to one or more issuers or securities) and other security-based swaps.
First Test of "Substantial Position"

The first substantial position test under the new rules:

Measures a person's current uncollateralized exposure by marking the security-based swap positions to market using industry standard practices.
Allows the deduction of the value of collateral that is posted with respect to the security-based swap positions.
Calculates exposure on a net basis, according to the terms of any master netting agreement that applies.

The thresholds established under the new rule for the first test are a daily average current uncollateralized exposure of $1 billion in the applicable major category of security-based swaps.
Second Test of "Substantial Position"

The second test under the new rule accounts for both current uncollateralized exposure and the potential future exposure associated with a person's security-based swap positions. The second substantial position test determines potential future exposure by:

Multiplying the total notional principal amount of the person's security-based swap positions by specified risk factor percentages (ranging from 6 to 15 percent) based on the type of swap and the duration of the position.
Discounting the amount of positions subject to master netting agreements by a factor ranging between zero and 60 percent, depending on the effects of the agreement.
Further discounting the amount of the positions by 90 percent if the security-based swaps are cleared, or by 80 percent if they are subject to daily mark-to-market margining.
The thresholds established under the new rule for the second test are $2 billion in daily average current uncollateralized exposure plus potential future exposure in the applicable major security-based swap category.

Definition of "Hedging or Mitigating Commercial Risk"

As noted, the first test of the major participant definition excludes positions held for "hedging or mitigating commercial risk" from the substantial position analysis.

The definition in the new rule for "hedging or mitigating commercial risk" encompasses any security-based swap position that is economically appropriate to the reduction of risks in the conduct and management of a commercial enterprise, where the risks arise in the ordinary course of business from a potential change in the value of:

Assets that a person owns, produces, manufactures, processes, or merchandises.
Liabilities that a person incurs.
Services that a person provides or purchases.

The definition of hedging or mitigating commercial risk does not encompass any security-based swap position that is held for a purpose that is in the nature of speculation or trading. Also, in contrast to the proposed rule, the new rule does not include requirements for assessing the effectiveness of hedging positions or for documenting that assessment.
Definition of "Substantial Counterparty Exposure"

The new rule defines substantial counterparty exposure using a calculation method that is the same as the method used to calculate substantial position. However, the definition of substantial counterparty exposure is not limited to the major categories of security-based swaps, and does not exclude hedging or employee benefit plan positions. Rather it encompasses all of a person's security-based swap positions.

The thresholds established under the new rule for substantial counterparty exposure are a current uncollateralized exposure of $2 billion or a sum of current uncollateralized exposure and potential future exposure of $4 billion across the entirety of a person's security-based swap positions.
Definition of "Financial Entity" and "Highly Leveraged"

The third aspect of the statutory definition of major security-based swap participant addresses any "financial entity" - other than one subject to capital requirements established by an appropriate federal banking agency - that is "highly leveraged" relative to the amount of capital it holds, and that maintains a substantial position in a major category of security-based swaps. For this part of the definition, the new rule uses the same definition of substantial position described above without excluding hedging or employee benefit plan positions.

For this aspect of the definition, the new rule uses the definition of "financial entity" that is based on the definition of that term in the Dodd-Frank Act provision for an end-user exception from mandatory clearing in Exchange Act Section 3C(g)(3). The new rule defines the term "highly leveraged" as reflecting a ratio of liabilities to equity in excess of 12-to-1. The proposal had set forth 8-to-1 and 15-to-1 as alternative thresholds.
Additional Aspects of the Definition of Major Security-Based Swap Participant

The new rule contains the following changes from the proposal:

Includes a safe harbor that provides that a person is not be deemed to be a major participant under certain conditions. Those conditions account for, among other things: the notional amount of the person's security-based swap positions, the maximum possible uncollateralized exposure associated with the person's security-based swap positions, and monthly calculations of current exposure and potential future exposure. The safe harbor is intended to help persons who are not likely to be major participants avoid the costs of performing the full major participant calculations.
The rulemaking further clarifies that security-based swap positions are attributed to beneficial owners of an account, or to parents or affiliates of a person, only when the counterparty to a security-based swap has recourse to the beneficial owner, parent or affiliate.

The new rule makes additional changes to the major participant tests, many of a technical or clarifying nature. Under the new rule, the SEC staff has to report to the Commission on whether changes should be made to the rules defining both security-based swap dealers and major security-based swap participants (including the rule implementing the de minimis exception to the dealer definition). The staff must also complete this report no later than three years following the later of the last compliance date for the registration and regulatory requirements for security-based swap dealers and major security-based swap participants or the first date on which compliance with the trade-by-trade reporting rules for credit-related and equity-related security-based swaps to a registered security-based swap data repository is required.

Commodity Exchange Act Amendments:

In addition to updating the Securities Exchange Act, the new rules jointly written by the SEC and the CFTC further define "swap dealer" and "major swap participant" in the Commodity Exchange Act (CEA). These rules and interpretations in many respects are parallel to the Exchange Act rules and interpretations addressed above. The new rule also further defines "eligible contract participant" under the CEA. The term "eligible contract participant" also is used in the Securities Exchange Act and is defined by cross reference to the CEA.

What's Next?

These new rule becomes effective 60 days after the date of publication in the Federal Register. However, dealers and major participants will not have to register with the SEC until the dates that will be provided in the SEC's final rules for the registration of dealers and major participants.

When the new rule further defining "eligible contract participant" becomes effective, certain exemptive relief that the SEC provided in connection with section 6(l) of the Exchange Act will expire. At that time, dealers, major participants, and other persons will become subject to section 6(l), which prohibits any person from effecting a security-based swap transaction (other than on a national securities exchange) with a person who is not an eligible contract participant, under the definition as amended by Title VII and as further defined by the new rule.

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