Yesterday CME shared a paper on the famous OTC derivatives and their treatment under Extraterritoriality. Due to the role of unregulated over-the-counter (OTC) financial derivatives in the 2008 financial crisis which began in the U.S. but whose influence was felt globally, the G-20 agreed in its Pittsburgh meeting in 2009 that “all standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012, at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements.”
The members of the G-20, in varying degrees and at different speeds, have embarked in their own jurisdictions to reform the OTC derivatives market. Given the interconnected nature of these markets, international cooperation has very much been part of crafting derivatives financial regulation.
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Sharing one of old article and trying to revisit the era of 2008.
As I have been continuously posting on the Credit derivatives these days thought of sharing a post that I did early in 2008 when the face of Investment banking completely changed after sub-prime crisis.
There was an era when Investment banking (IB) was on the role … hefty packages, luxurious life, dream job for a financial student were some of the features of IB. Over the years evolved as a very big concept coined by the US, In India we use to call that as a merchant banking . View full article »
The FT has recently done a timely article-on the consequences of the EU‘ ban on the naked CDS.
Investors are buying protection on European banks on the basis that banks and sovereigns are so intimately linked that any increased risk of a sovereign default will increase the value of a bank CDS in a similar way to a sovereign CDS.
“The big downside of the ban is that it is likely to increase borrowing costs for financials,” said Michael Hampden-Turner, Citigroup credit strategist. View full article »
At the annual general meeting of the International Swaps and Derivatives Association in Singapore concluded
yesterday,a group of panelists highlighted the lack of clarity over resolution for failed Central counterparty (CCPs) as a significant concern for the G20 objectives of eliminating systemic risk.
Central counterparty clearers stand to be the next “too-big-to-fail” institutions and could pose an acute threat to the
financial system if regulators stall on plans to manage the potential failure of a clearing entity.
There are two main processes that are carried out by CCPs: View full article »
The recent speech by Jeremy Stein a Federal Reserve Governor brought on board just last year,received a lot of
attention for its suggestion that monetary tools might be used in addressing credit market-overheating. That is an interesting argument, but I don’t want to deal with that today. Rather, I want to look at Stein’s comments on collateral transformation:
Collateral transformation is best explained with an example.
Imagine an insurance company that wants to engage in a derivatives transaction. To do so, it is required to post collateral with a clearinghouse, and, because the clearinghouse has high standards, the collateral must
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The largest U.S. banks… would have to hold capital in excess of Basel III standards under a proposal being drafted by Senate Democrats and Republicans to curb the size of too-big-to-fail banks.
The current draft of the legislation would require U.S. regulators to replace Basel III requirements with a higher capital standard: 10 percent for all banks and an additional surcharge of 5 percent for institutions with more than $400 billion in assets. View full article »
There are many lessons to be learned from the Cyprus bailout, and plenty of implications for how things may develop in the future. We list 25 here, but there are more.
Lesson 1: Do not underestimate the ability of the eurozone to do the right thing – after all the alternatives are exhausted;
Lesson 2: Eleventh hour deals can often lead to mistakes and have unintended consequences. The decision to haircut depositors under EUR 100k was a pothole the Troika fell into. It questioned the integrity of the EUR 100k deposit guarantee;
Lesson 3: The disappearance of Mario Monti from the scene has reduced the influence the South has on decisions about the future of the euro; View full article »
There has been a lot of negative comment about the Cyprus deal. That is understandable: you can reasonably argue that it will produce crippling austerity; that it is ridden with moral hazard; that it will create a bank run across most of Southern Europe. But what you can’t argue is that it was unexpected.
Too understand the deal in-case If you are in Cyprus :
* You can put money into your bank, but you can’t get it out again. At least you can, through ATMs, but only in very small amounts.
* If you have money on deposit, you can’t take the money out and close the account. And if it’s a time deposit, when it reaches the end of its life, you can’t have the money to spend. You have to roll it over into a new deposit. View full article »