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2012 - OTC FX Clearing moves to centre stage


MiFID II, EMIR and Dodd-Frank - where are we now? MiFID II


For the first time the Markets in Financial Instrument Directive (MiFID) will cover market trading of OTC derivatives. London-based law firm Linklaters advise, “All trading in derivatives which are eligible for clearing and sufficiently liquid will be required to move to either:


t Regulated markets; t Multilateral trading facilities (MTF); or t A specific sub-regime of organised trading


facilities, which must fulfil (as well as general requirements for organised trading facilities,) the following criteria:


o - Provide non-discriminatory multilateral access to its facility;


o - Support the application of pre and post-trade transparency;


o - Report transaction data to trade repositories; o - Have dedicated systems or facilities in place for the execution of trades.”


Pre- and post-trade transparency requirements will relate to all derivatives trades wherever they are traded.


MiFID II proposals were published by the European Commission on 20th October 2011. Consultants Deloitte say, “Given the timeframes set out, it does not seem likely that the G20 deadline for the trading of standardised derivatives on electronic platforms by the end of 2012 will be met.”


EMIR


Te UK Financial Services Authority (FSA) advises that European Markets Infrastructure Regulation (EMIR) “follows, and facilitates within the EU, the commitment made by G-20 leaders in Pittsburgh, September 2009, that:


the prospects for their businesses and are taking what steps they can to ensure that they will be ready to offer compliant services to support their clients’ needs. Te greatest fear is that regulations will either mismatch across various jurisdictions - Europe, the US, the major financial centres of the Far East - and that they will be implemented at differing times. Both of these could cause competitors to avoid regulatory constraints perhaps by relocating their operations to unregulated centres. In the end however, as with so much of the


“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. We ask the Financial Stability Board (FSB) and its relevant members to assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse.”


Te European Parliament finalised its input in July of this year. Currently EMIR is being fine tuned in a “trialogue” process involving the European Parliament, the Economic and Financial Affairs Council (ECOFIN) and the European Commission. It is expected that this will be concluded in the first quarter of 2012.


Dodd-Frank


“Te [Dodd Frank] Wall Street Reform [and Consumer Protection] bill will – for the first time – bring comprehensive regulation to the swaps marketplace. Swap dealers will be subject to robust oversight. Standardised derivatives will be required to trade on open platforms and be submitted for clearing to central counterparties. Te Commission looks forward to implementing the Dodd-Frank bill to lower risk, promote transparency and protect the American public”, Gary Gensler, chairman of Commodity Futures Trading Commission (CFTC).


While CFTC has finalised certain parts of Dodd- Frank it is not expected to have defined the precise rules for FX derivatives until the first quarter of 2012.


post-crisis regulation that has emerged from Brussels and from the US, there is a certain inevitability surrounding global compliance. Te FX market will probably have no choice about whether or not to comply with OTCFX regulations eventually. Going forward the game is about minimising the effects and costs of regulation through the lobbying efforts of bodies such as AFME, SIFMA, ASIFMA and others and then ensuring that full clearing and transparency requirements will be met when the regulations take effect.


january 2012 e-FOREX | 29


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