Fall 2014 Edition

  • 242

    MULTIPLE PRIME UTILITY: the key to transforming the fund manager/prime broker relationship

    In response to the financial crisis, financial markets across the world are transforming themselves. One of the most significant changes happening today is in the Prime Broker/Fund Manager relationship—a world in which Prime Brokers (PBs) provide a variety of services to Fund Managers. The Fund Manager’s alpha generation bottom-line and the Prime Broker’s services-based business model were both impacted by the turmoil in the financial markets, prompting a restructuring of the industry and a transformation of the industry’s operating model. In this article, Sudhanshu Bahadur, Vishal Bakshi and Valcony Sun explore the changing business model of Fund Managers and Prime [...]
  • 229

    SINGLE DEALER PLATFORMS: are their days numbered?

    While single dealer platforms (SDPs) have improved the experience presented to an institution’s trading clients, they are not entirely fulfilling the core requirements in terms of openness or degrees of speciality. The needs of the institution and its clients are still too much at odds and this discord will drive the next revolution in client trading and information services. Sean O’Donnell and Matt Hopgood discuss the next generation of these platforms and the implications to business and technology strategies. Over the last five years, the proliferation of single dealer platforms (SDPs) has increased dramatically—from initial pioneering efforts by leading tier [...]
  • 218

    CALCULATING THE CLEARING THRESHOLD: challenges for non-financial counterparties in the european union

    While EMIR mandates clearing and reporting requirements on over-the-counter (OTC) derivatives for Financial Counterparties (FCs), it exempts Non-Financial Counterparties (NFCs) from parts of reporting and clearing requirements only until their positions in proprietary trades remain within a pre-defined clearing threshold (defined for each asset class by ESMA). In order to avoid the infrastructure and process costs for the increased EMIR reporting and risk management responsibilities, every NFC has to closely monitor its vulnerability to breach the mandated clearing threshold. For many, however, this is no small task. In this article, Mahima Gupta and Shashin Mishra review the challenges involved for [...]
  • 202

    THE HIGH PRICE OF NON-STANDARD COMMUNICATION: firms reduce costs, errors and risk for OTC cleared derivatives reporting and communications by adopting new clearing connectivity standard

    Now that some of the dust has settled following the implementation of several regulatory initiatives, such as Dodd-Frank, MiFID II/MiFIR, and European Market Infrastructure Regulation (EMIR), many financial institutions are grappling with how to deal with the impact these initiatives have had on their derivatives business. In this article, Phil Matricardi and Adam Kott discuss why firms are adopting the new ISDA Clearing Connectivity Standard (CCS), introduced two years ago, for derivatives reporting and communication and why an industry utility for data transformation is a necessary next step. OVERVIEW New regulatory requirements, combined with the increasing volume of cleared derivative [...]
  • 380

    CHANGING PARADIGMS IN COMMODITY MARKETS: what are price reporting agencies doing to remain on top of their game?

    The commodity markets have witnessed major fundamental shifts in recent times. For example, advances in mechanical and chemical engineering in the energy markets have accelerated the ability to extract and process energy sources previously thought inaccessible at an unprecedented scale. Massive investments in infrastructure are transforming the future of extracting, processing and transporting raw materials—everything from agricultural products, base metals, natural gas, coal, petrochemicals and refined products— in order to meet the growing needs of the rising world population. New trade flows and trade patterns are emerging to supply new markets—particularly in Asia. Rapid industrialization, growing populations and profound socio-economic [...]
  • 363

    PURSUED BY A BEAR: implications of banks leaving the traded energy markets

    With investment banks winding down or selling off their energy trading divisions, there is a void developing in the traded market. In this article, Ujjwal Deb, Rashed Haq and Lukasz Hassa discuss the reasons for the banks’ exit, the impact on market participants and how the market might respond to these changes over time. The past year has seen an unprecedented exodus of global investment banks from the traded energy markets. This once-in-a-generation change is dramatically reshaping the commodity market landscape since the Enron debacle in the early 2000s, when many US merchants exited the energy markets and banks streamed [...]
  • 351

    REMIT: bringing physical commodity trading into the regulatory spotlight

    As far back as the 1986 Financial Services Act, regulators in the UK have had the authority to oversee activities related to commodity derivatives, but until recently, their presence was negligible. Despite the advent of the Financial Services and Markets Act in 2000 and a move from self to statutory legislation, the regulatory focus on commodities remained limited. The weight of rule-making was restricted to just two small handbooks—one for energy market participants (EMPs) and one for oil market participants (OMPs). With the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT), however, that is about to change. In this [...]
  • 335

    MIFID II: harmonization mandates new business models in the OTC space

    Regulatory initiatives, such as the Dodd-Frank Act and EMIR, have had a seismic impact on derivatives markets. The Financial Stability Board’s seventh progress report on the implementation of OTC derivatives market reforms has highlighted crossborder consistency issues arising from different jurisdictions. The combined effect of these regulations through the mandated electronic trading and central clearing of standardized derivatives contracts has been the “balkanization of the capital markets,” causing pockets of liquidity and varying prices for the same contracts across jurisdictions. With the implementation of MiFID II/MiFIR on the horizon in Europe, the industry is anticipating a more level playing field [...]
  • 319

    CROSS-ASSET UNIVERSAL PRODUCT IDENTIFIER: is this the solution the industry is looking for?

    Covering the entire spectrum of asset classes and financial services, from loans and credit cards to derivatives and bond positions, a Universal Product Identifier (UPI) will enable a holistic approach to identifying all trades and positions, including capital calculations, reporting, clearing mandates and booking rules. While such an idea sounds great in theory, historical attempts at achieving global agreement have fallen short, even within a subsector of the industry. Peter Meechan, Jim Bennett and Pauline Tykochinsky examine the feasibility of universal product codes, ponder whether the industry is ready to come together to create them, and discuss what a potential [...]
  • 310

    THE NOVATION CHALLENGE: how to ensure a successful outcome

    Organizations within the financial markets are undergoing a period of incomparable change. The financial crisis has prompted a reevaluation of how risk is managed within firms, and as a result, many have been either forced to, or have elected to, fundamentally transform their business models. This has prompted an unprecedented amount of change in legal entity structures, often leading to large-scale migrations of trade portfolios. As firms migrate positions between legal entities, the need in the market for novation expertise is growing as never before to avoid reputational damage with counterparties, spiraling costs and increased operational risk. In this article, [...]