aci briefing q2 12:layout 1 · in this issue of the aci briefing. in terms of results and...

ACI BRIEFINGNEWS FROM THE FINANCIAL MARKETS ASSOCIATION

http://www.aciforex.org

UAEFMA Hosts First Class World Congress.................................1

Message from the President.............................1

Segre Appointed Chair of Board of Education as Niggli Steps Down.....................8

Regulation, Market Conventions and

FTT Come Under ACIFXC Spotlight .............10

New CFP Chair Outlines Focus for 2012 .......10

CFTC and SEC Finalise

‘Swap Dealer’ Definition ..................................11

DTCC calls for fragmentation protection...11

Exchange-Traded Derivatives on the Rise.....12

Iosco and CPSS Release Standards for Centralised OTC Clearing..........................12

Messagefrom thePresident

The 51st ACI World Congress,Dubai, March 2012 marked oneof the highlights of ACI’snetworking events of the year.The local organisers did very welland on behalf of the wholeAssociation our thanks go toMohammed Al Hashemi,President of the UAEFMA. The support by the local Ministryof Finance, His Highness SheikhHamdan Bin Rashid al Maktoum,Deuputy Ruler of Dubai andMinister of Finance and also HisExcellency Sultan Bin Nasser AlSuwaidi, the Governor of theUAE was remarkable. Also remarkable was theparticipation of central bankrepresentatives during the Councilmeeting, showing the stronginterest from the authorities intoACI’s activities. To summarise, more than 600people participated in Dubai. Youcan read more about the Congressin this issue of the ACI Briefing.In terms of results andachievements, the DubaiCongress was for ACI a greatsuccess:1 We launched a New Chapter

FX Best Practices Opera-tions/84 Best Practice Defini-tions at page 39, which nowneed to be incorporated into‘The Model Code’

2 We launched an EducationWikipedia on ACI’s website,through which ACI memberscan access study guides, ex-change information and discussquestions with the community

3 We agreed to the implementa-tion of a basic module for ALM

Q2 2012 VOL 17, ISSUE 109 ISSN 1469-2031

Contents

ACI Head Office: 8 rue du Mail, F75002 Paris, Tel: +33 1 42975115 / Fax: +33 1 42975116

For the first time in its51 World Congresses,ACI – The FinancialMarkets Associationheld its annualgathering in theUnited Arab Emiratesand the UAEFinancial MarketsAssociation, under theleadership ofPresident MohammedAl Hashemi, did notfail to pull off a world-class, spectacularevent.

The decision to meet in the Middle East wasrepresentative of the extraordinarydevelopment of the financial markets in theGulf region. In recent years, the area hasdeveloped as a vibrant financial hub andDubai has positioned itself on the map as oneof the Middle East’s most respected marketsfor global banking and finance.The 51st ACI Financial Markets WorldCongress was held on 22-24 March in Dubaiunder the patronage of Sheikh Hamdan binRashid Al Maktoum, Deputy Ruler of Dubaiand Minister of Finance. More than 600 participants from more than60 countries, representing the buy, sell andservice sides of the markets, attended theCongress to discuss and debate businesschallenges facing the financial markets.Appropriately, both local and global issues,trends and opportunities in the FX andfinancial markets came under the spotlight in

the business sessions, which featured anexceptionally high calibre of speakers.Experts from global financial institutionsdiscussed a range of topics fromopportunities created in the Middle Eastregion in the wake of the Arab Spring to thestate of the financial markets in the aftermathof the Eurozone crisis.Following welcome remarks from ManfredWiebogen, President of ACI, and theUAEFMA’s Al Hashemi, ACI was honouredto present His Excellency, Sultan bin NasserAl Suwaidi, Governor of the Central BankUAE, who delivered the first keynote addressof the two-day business programme.Al Suwaidi discussed the challenges banksglobally will face in terms of availability offunds because of forthcoming regulationsand difficult economic conditions. Thebanking sector across the world will be

ACI BRIEFING IS PUBLISHED BY:

PROFIT & LOSS IN THE CURRENCY & DERIVATIVE MARKETS

®

continued on p.3 �


MOHAMMED AL HASHEMI, PRESIDENT OF THE UAEFMA

UAEFMA Hosts First Class World Congress

into the existing ACI Dealing Certifi-cate

4 There was agreement for a future ACIALM Certificate

Amongst the participation of high profilespeakers from around the globe, we

would like to highlight sister associations,the EBF (European Banking Federation),ICMA (International Capital MarketsAssociation), AFME (AssociationFinancial Markets Europe) and EACT(European Association CorporateTreasurers) who, together with ACI, took

part in an absorbing panel discussion thatlooked at hot topics including the issue ofa ‘Financial Transaction Tax’ and otherregulatory themes.

Enjoy your reading.Manfred Wiebogen, President ACI

impacted by new capital adequacyrequirements under Basel III and otherinternational regulations and “industrialactivity and trading could face a shortageof funds,” he said. However, the UAE bank lending growthrate is “reasonable” and projects in thecountry will not suffer from fundingshortages because of changes ininternational banking regulations or thepotential difficulties faced by banks inEurope, he said. UAE banks boast some of the highestcapital adequacy ratios in the world andhave been relatively unhurt by theEurozone crisis because they have onlyminor exposure. Al Suwaidi said theUAE is performing well because of itsstrong trade and tourism sectors. His opening remarks were followed bythe first panel of the day: FinancialMarket Opportunities Created by the ArabSpring. According to Said Hirsh, MiddleEast Economist for Capital Economicsand one of the panellists, opportunitiesbeyond the initial period of unrest incertain countries could be significant,particularly in the poorer countries inneed of capital investment.“Emerging financial market opportunitiescreated by the Arab Spring vary acrosscountries,” said Hirsh. “For the resource-poor countries, particularly those hit hard

by the turmoil, the opportunities beyondthe initial period of unrest could be huge.If these countries end up pursuing market-friendly economic reforms, along withlegal and regulatory reforms, this wouldboost their growth and incomes in themedium and long-term, which would inturn attract foreign capital.”On the panel discussion with Hirsh wereFarah Foustok, CEO ING InvestmentManagement, Middle East, and Brad

Bourland, Chief Economist and HeadProp Investments of Jadwa Investments.The panellists agreed that as Gulfcountries, with the exception ofBahrain, did not experience any majorprotests they have largely been viewedas safe havens. “The GCC emerged as a safety zone amidregional turmoil. The UAE is widely seenas very safe in the region and the countryhas hugely benefited from thisperception,” said Bourland, However, while regional fund flows areexpected to give a boost to GCC financialassets, the panellists warned that Gulffinancial markets presently lack depth toabsorb the potential investment flowsfrom the countries impacted by the ArabSpring. “Currently we face a situation thatthere are more brokers in the market thanthe number of listed stocks,” he added. The panel discussion was followed by apresentation and question and answersession with Professor Otmar Issing,former Chief Economist at the EuropeanCentral Bank and President of the Centrefor Financial Studies at Goethe Universityin Frankfurt, who discussed the Eurozonecrisis and its global implications. Issing talked about how European policies

UAEFMA . Continued from p.1

Message from the President. Continued from p.1

HIS EXCELLENCY, SULTAN BIN NASSER AL SUWAIDI, GOVERNOR OF THE CENTRAL BANK UAE

ARAB SPRING PANEL

2

ACI BRIEFING I NEWS FROM THE FINANCIAL MARKETS ASSOCIATION I Q2 2012 VOL.17, ISSUE 109 I http://www.aciforex.org


were set in the past and, broadlyoptimistic for the future, discussed howthese will be adapted in order to survivethe Eurozone crisis.Continuing with a local flavour, thesecond panel of the day zeroed in onsukuk trading, the Islamic equivalent ofbond issues, which has seen a surge insales in recent months as issuers haveturned to Islamic finance for capital.Growing trade in Islamic bonds in theGulf region this year could be drivenfurther by increased private sectorinterest in sukuk on the back of strongactivity by banks, panellists tolddelegates. The third and final business session of theday featured three high profile economistsand strategists – Fiona Lake, Economist,Global Markets at Goldman Sachs; LenaKomileva, Managing Director and ChiefEconomist, G+ Economics; MariosMaratheftis, Head of Research at SCB;and CEO of Intl. Commodities, JeffRhodes, a leading figure in theinternational bullion market. Thepanellists discussed the future of the USdollar, BRICS and commodities. Rhodes told delegates that he remainedcautiously bullish for 2012 as a whole andsees the current weakness across theprecious metals sector as a buyingopportunity. “In a world devoid of yield,money managers need to invest in assetclasses that will give capital gains, andthey need to point to track record whenexplaining their investment strategies totheir investors,” he said.“Gold is the star performer in globalmarkets, gaining 480% over the last ten

years, posting an increase in the annualprice in each of those years with anaverage annual return of 20% perannum.”After a day of insightful discussion, thepace did not slacken on the second day ofthe Congress and delegates were treatedto a keynote address on Eurosystemliquidity by Paul Mercier, PrincipalAdvisor in the Directorate GeneralMarket Operations at the EuropeanCentral Bank.Mercier discussed the reasons behind thethree waves of recent intervention by theECB and told delegates: “We are not inthe mode of quantitative easing but we arein the mode of credit enhancement.” He added: “We hope that what we dowill avoid a credit crunch and evenfavour credit. The question often arises:

what if the credit starts to move in acertain way, what will you do? We dowhat a central bank always does, we domonetary policy if need be, if thingsaren’t going so well. But then weincrease our rates of course. So we have all the tools that go with theconsequences of what we have done andwe keep this clear separation between themonetary policy stance that consists inusing interest rates, and liquiditymanagement which is there, first, toensure the transmission of monetarypolicy, and second, that tries to avoid thecollapse of the banking sector in Europebecause of a lack of liquidity.” He concluded: “I cannot make anyforecasts about the future but it seemsthat things are improving; it seems thatthe most dramatic part of the crisis isbehind us.”Mercier’s informative presentation wasfollowed by a panel discussion on thedevelopment of the Islamic bankingmarket, with a specific focus on hedgingand new initiatives.Panellists included Lawrence Oliver,Director DDCap; Simon Eedle, GlobalHead, Islamic Banking, Credit AgricoleCIB; Dr Sayd Farook, Global Head ofIslamic Capital Markets, ThomsonReuters; and Jahangir Hussain, IslamicFinance Product Specialist, Bloomberg.The conversation returned to moremainstream topics later in the morningwhen Robin Poynder, head of regulationat Thomson Reuters, took to the stage togive a presentation on over-the-counterderivatives trading regulation. This wasfollowed by a lively debate from astellar line up of panellists who

PAUL MERCIER

BRICS PANEL

3




discussed the global impact of aproposed European Union financialtransaction tax. The disputed tax, which has beenproposed by the European Commission,would levy 0.1% on stocks and bonds and0.01% on derivatives trades betweenfinancial institutions when at least oneparty is located in the EU.Delegates were given presentations on theunintended consequences of such a taxfrom Guido Ravoet, Secretary General ofthe European Banking Federation, andRichard Middleton, Managing Director,Tax Division, Association for FinancialMarkets in Europe (AFME). Ravoet told delegates: “We havepublished a research report and think thestated objectives of the EuropeanCommission are inappropriate anddisproportionate. We also anticipate asubstantial economic impact if thedirective is adopted, which will haveunintended consequences, and I feelintended consequences. “The EC has produced an impactassessment but this does not support thecase for an FTT. The Commission used anover-simplified model for its economicanalysis and failed to publish a country-by-country analysis. In our opinion theyhave not properly understood thestructural destruction of financial marketsand the economic impact of memberstates and citizens,” he said. “The broad-base approach of the FTT willhave a huge affect on volumes. In ouropinion it will impact market liquidity anda major risk management pool used bybanks and corporates. Up to 90% ofderivatives could disappear as a result ofimplementation of the FTT. How can such

a massive disruption be considered by theCommission as a welcome structuralbreak?” he askedMiddleton questioned who would bear thebrunt of the tax and said it wouldultimately be transferred by marketmakers to end users such as Europe’spension funds, asset managers andcorporates who enter into transactions fornecessary hedging purposes. The two men then joined MorganMcDonnell, Head of Global ForeignExchange, Cash and Credit Markets, RBCDexia Investor Services Trust andPresident ACI UK; Robert Mohamed,Chairman ICMA Middle East, Africa andAsia; Richard Raeburn, ChairmanEuropean Association of CorporateTreasurers (EACT); and Luc vanLaarhoven, representative of theCommittee for Professionalism and Board

Member of ACI Luxembourg, for furtherdiscussion of the tax.The panellists warned that if notimplemented globally, the tax would alterthe level playing field between countriesand could lead to European banksrelocating out of the EU jurisdiction to amore “friendly” environment. “If you look at Dubai, it would not bepossible to implement a financialtransaction tax,” said van Laarhoven.Ravoet added that countries such as theUS also would not accept it.Although strongly opposed to it, thepanellists suggested that alternatives tothe FTT could be a VAT on financialservices or a harmonisation of bank leviesthat already exist.The business sessions closed out withACI’s General Assembly, where ACIPresident Wiebogen apprised members ofthe outcome and issues discussed at thevarious committee meetings in Dubai.This was followed by a presentation fromAndreas Gaus, Managing Director atCredit Suisse and Chair of the EuropeanCentral Bank Operations ManagementGroup, on the launch of the new FX BestPractice Operations guide which willreplace Chapter 3 of ACI’s Model Code.It was also announced that DavidWoolcock, Head of Bank Sales at Fxall,had been appointed Chair of ACI’sCommittee for Professionalism, assumingthe role held previously by RBS Japan’sTerry Tanaka, and that Christoph Niggli, along-time supporter of the ACI educationsystem and chair of the ACI Board ofEducation, was sadly retiring. Niggli is succeeded by Claudia Segre,

FTT PANEL

DUBAI PANEL

4




Head of Fixed Income and OFP at CreditoEmiliano and Secretary General ofAssiom Forex Italy. Segre, who waspreviously Vice Chair of the Board ofEducation, is an ideal successor and hasmany ideas for the future of education,Wiebogen said.Both Niggli and Gaus were givenHonorary Membership to ACI for theextensive work they have done for theassociation

Beneficial Relationship

The Congress with its accompanying FXtechnology exhibition was held at theDubai International Convention andExhibition Centre. Speaking to press at the event, Wiebogensaid that ACI had a long and beneficialrelationship with the Gulf region and thatthis could not have been more evidentthan during the Congress in Dubai.“For the last two days Dubai has been putin the spotlight of the financial industry,and the impression and the contacts madewill continue to last,” he added.The Congress was organised by theUAEFMA, which was established in 2011to provide a platform for banking andfinance professionals from across thecountry to network and debate strategiesin order to foster future growth.The UAEFMA’s Al Hashemi said: “TheACI Financial Markets World Congresswas the first congress that we havehosted, and proved to be an astoundingsuccess with very positive feedback fromspeakers and delegates alike. We nowlook forward to hosting many more

similar conferences on an annual basis.”The ACI World Congress was supportedby the UAE Central Bank, OfficialBanking Partner Emirates NBD, GoldSponsor UBS, Silver Sponsor NationalBank of Fujairah, Strategic Partner DubaiInternational Financial Centre (DIFC),and Official Media Partner, Bloomberg.Other sponsors included 360T, 4Cast, ACIIndonesia, ADS Securities, BNP Paribas,Citi, Commerzbank, Copp Clarke,DDCAP Ltd, DealHub, Deutsche Bank,DJ FX Trader, Gain GTX, ICA, Icap,INTL FCStone, JP Morgan, MasterCapital Group, Micex-RTS Group, SaxoBank, SEB, Standard Bank, ThomsonReuters and Wall Street.

Congress 2012: Images from Dubai

To complement its extensive businessprogramme, the UAEFMA created anoutstanding networking programme,allowing delegates to meet socially anddiscuss the topics of the day as well asto renew old acquaintances and makenew friends. After the first day of panel discussionsand presentations, attendees were treatedto a desert dune safari and dinner in fineArabian style. Leaving behind the bustleof the city, safari guides transporteddelegates by 4x4 vehicles across sanddunes and deep into the heart of thedesert to the beautiful Dubai DesertConservation Reserve. As the sun set,lanterns come to life signalling atraditional Arabian welcome and feast.In celebration of the highly successfulCongress, the UAEFMA closed theevent with a gala dinner for delegatesand partners at the The Pavillion,Armani Hotel Dubai. Located at thefoot of the Burj Khalifa, the tallestbuilding in the world, and with theiconic Dubai Fountain providing aspectacular and entertaining backdrop,the combination of stunningarchitecture, minimalist elegance andgracious hospitality resulted in a world-class experience that rounded off theCongress perfectly. At the closing ceremony, ACI PresidentWiebogen and the UAEFMA President,Al Hashemi took to the stage to astanding ovation and led the ceremonialturnover of the ACI flag to the next ACIWorld Congress host, ACI Singapore.

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At the 51st ACI World Congress inDubai, Christoph Niggli, a long timesupporter of the ACI educationsystem and Chair of the ACI Boardof Education, announced hisretirement. He is succeeded byClaudia Segre, Head of FinancialInstitutions and Infragroup atCredito Emiliano and SecretaryGeneral of Assiom Forex Italy.

Under Niggli’s four years of leadership onthe Board of Education, ACI entered intoan agreement with the Frankfurt School ofFinance and Management, which assistsin maintaining the high quality of ACIeducation programmes and examinations,and experienced a record number of ACIexams taken – ACI now certifies some1,400 practitioners a year. In addition,ACI’s Dealing Certificate and Diplomaare recognised and recommended by theUK Financial Services Authority, amongother regulators. As well as being the organiser of two ACIDavos Forums, Niggli oversaw the updateof ACI Web, the implementation of a newMarket Experts team and the update ofthe Operations Certificate programme,among many other achievements.Speaking at the ACI General Assembly inDubai, Manfred Wiebogen, President ofACI - The Financial Markets Association,said: “After so many years Christoph hasdecided to retire from his activities. Forme he is one of the best Chairs we’veever had.”Upon receiving Honorary Membership toACI for the extensive work he has donefor the association, Niggli said: “We havea clear structure in education. We haveour Dealing Certificate, our OperationsCertificate, we have a clear pathway ineducation and this is important when wepitch ourselves with regulators and centralbanks. This is a huge value that we have.”ACI regularly communicates withregulators around the world on theeducation and training of marketparticipants. Through its educationprogrammes and exams, ACI promotesthe highest global standards ofprofessionalism, competence and ethics inthe financial markets. The educationprogramme provides a professionalqualification that improves job

performance and setsbenchmarks within theindustry. Segre, who was previouslyVice Chair of the Board ofEducation, is the idealsuccessor and brings manyideas for the future ofeducation, Wiebogen tolddelegates in Dubai.Over the past year, ACI hasbeen updating its educationprogramme and restructuringits examination portfoliothrough the integration of newtopics such as asset liabilitymanagement and themanagement of liquidity andcertain instruments in foreignexchange and fixed income. “Also, in terms of decisionsmade regarding education thisyear, we have taken intoaccount that the globalfinancial crisis movedqualification into the focus ofthe regulators and also thefinancial institutions workingin the markets,” Segre tellsACI Briefing. “Education,examinations and anything related tocertification has become a keyinstrument in managing risks infinancial institutions and these aspectshave to be taken into account whenrestructuring the contents of the examsand education in general.“The new syllabus of the ACI DealingCertificate is already finished so we willnow focus on updating the ACI Diploma,”says Segre. “We have the DealingCertificate for junior people approachingthe trading room and we have theDiploma for more senior people, so ourfocus is on the middle level, allowingsenior people to update themselves, toimprove their skills due to the big changein the markets and also to offer them theopportunity to have a specialisededucation dedicated to certain segmentssuch as forex advanced, fixed incomeadvanced, Islamic banking and othertopics that are important such as assetliability management. “This is important not only in the US andthe UK but in all countries, particularlyemerging countries. Getting an education

makes a big difference in financialmarkets,” Segre adds.Another key area of focus for the Boardof Education this year will be obtainingrecognition for its certificates anddiploma by regulators around the world.The certificates have already gainedrecognition from the UK FSA, theDutch Securities Institute in theNetherlands and the financial regulatorin Sri Lanka.“We are waiting for a final decision fromother regulators that we have been incontact with,” Segre says.The Board of Education has also launchedthe ACI WIKI Platform, an onlineresource for education matters. “Throughthe WIKI platform it will be possible forparticipants to access study guides,exchange information and have questionsanswered by trainers that are accreditedby ACI International. It will provide anexchange of expertise betweenprofessionals through all possible formatsand content,” says Segre.The WIKI platform will go live thissummer.

Segre Appointed Chair of Board of Education as Niggli Steps Down

CLAUDIA SEGRE

CHRISTOPH NIGGLI

David Woolcock, Head of Bank Sales atFXall, has been appointed Chair ofACI’s Committee for Professionalism,which is responsible for marketpractices and advises the ACIExecutive Board on decisionsconcerning guidelines, both technicaland ethical, and on the professionalactivities of ACI members. Theguidelines comprise the Model Code. Specifically, the CFP formulates andproposes policies and guidelinesestablishing the educational andprofessional standards for members ofACI – The Financial Markets Associationand produces specialised reports relatingto market issues such as risk managementand crisis management.Speaking on the sidelines of the 51st ACIWorld Congress in Dubai, Woolcock, whoassumes the role held previously by RBS

Japan’s Terry Tanaka, says theCFP’s main focus for 2012 isa re-write of the Model Code.At a working group meetingin Dubai the CFP decided toreplace Chapter 3 of theModel Code with a new FXPractices in Operations, whichcovers confirmations;settlement, standingsettlement instructions,netting, performance and capacitymanagement in FX processing;reconciliations, investigations,differences, claims; general setup,controls, segregation of duties; andelectronic trading.FX Practices in Operations was puttogether by a team led by Andreas Gaus,member of the ACI Board of Educationand Chairman of the European Central

Bank Operations ManagementGroup (OMG), who reviewedthe Bank of England Non-Investment Products (NIPS)Code, the Federal ReserveBank’s 60 Best Practices andthe ECB’s OMG documents,among other documents,which were then formulatedand updated to create a newbenchmark.

Woolcock says the team was a mixedaudience from Banque de France, Bancode Portugal, Ceca, Citi, Credit Suisse,Deutsche Bundesbank, Dexia, GoldmanSachs, HSBC, Nordea and UBS. Externalreview was provided by the Reserve Bankof Australia, the Monetary Authority ofSingapore, the Bank of Japan, the USFederal Reserve System, the Bank of

New CFP Chair Outlines Focus for 2012

DAVID WOOLCOCK

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The ACI FX Committee (ACIFXC), aninternational group created by ACI -The Financial Markets Association topromote a global, orderly andtransparent FX market and to lobby onregulatory issues, held its quarterlymeeting at the ACI World Congress inDubai to discuss forthcomingregulations and market conventions.

Under the spotlight were issues that swapexecution facilities (Sefs) are facing;market conventions on the EUR/RUBcurrency pair; and the potentialrepercussions of a European Commission-proposed financial transaction tax.“We were given a presentation byBloomberg on how it is preparing for achange in regulation and the issues Sefswill face,” says Stephane Malrait, Chairof the ACIFXC. “Specifically, wediscussed the issue of trade andcounterparty identifiers. There are twocodes that are going to be needed as partof a trade message – the legal entityidentifier (LEI) for the counterparty andthe unique swap identifier (USI) – forrecord keeping and trade reporting.” An LEI is a unique number that identifiesan entity in the financial market, inessence a “social security number” systemfor entities. The LEI will play a crucial

role in fulfilling the mandate from theDodd-Frank Act to improve markettransparency. The lack of standardisation of entityidentifiers caused a problem in theaftermath of the Lehman Brotherscollapse in September 2008, as financialinstitutions tried to figure out theircounterparty risk exposure. Companies,and even divisions within the samecompany, use proprietary schemes toidentify their counterparties, making itdifficult to integrate or consolidate dataacross platforms. The USI called for by the proposed rulesare to be created and assigned to a swap atthe time it is executed and used to identifythat particular transaction throughout itsexistence. US firms must have LEI andUSI programmes in place by deadlines asearly as this summer.“An issue that trade platforms and banksare facing is how to create theseidentifiers and how to populate them. Ithasn’t been fully documented by theregulators yet,” says Malrait.Also under discussion at the Dubaimeeting was market conventions oncertain currency pairs. “We now have anagreement to push the EUR/RUB to moveto T+1 which is the case onshore but notoffshore on some platforms,” says

Malrait. “There are discussions led byACI Russia to push this with all electronictrading platforms and already someagreements have been made to move fromT+2 to T+1.”A hot topic at present is the FinancialTransaction Tax proposed by theEuropean Commission, which would levy0.1% on stocks and bonds and 0.01% onderivatives trades between financialinstitutions when at least one party islocated in the European Union.Malrait says ACI has reaffirmed thedangers of implementing the tax, whichhe says would alter the level playing fieldbetween countries, unless it is appliedglobally, and increase fiscal arbitrageopportunities between countries.The tax would also be transferred to endusers as it would oblige market makers toincrease their bid-offer spreads in order topay for the tax percentage. This wouldmainly affect corporate, pension fundsand other hedging clients who do notenter into such transactions forspeculation but for necessary hedgingpurposes, Malrait says.The ACIFXC’s next meeting will takeplace in London in June and in Casablanain November to coincide with the ICA -Interarab Cambist Association annualconference.

Regulation, Market Conventions and FTT Come Under ACIFXC Spotlight


The Depository Trust and ClearingCorporation (DTCC) has urged the USCongress to pass new legislation forthe OTC derivatives markets toprevent fragmentation of global swapsdata and to support greatertransparency within the market.

The president and chief executive officerof the DTCC, Donald Donahue, in atestimony before the House CapitalMarkets and Government SponsoredEnterprises Subcommittee, stronglyendorsed ‘The Swap Data InformationSharing Act’.

The legislation would remove theindemnification provisions from theDodd-Frank Act, which require US-based swap data repositories (SDRs) toreceive a written indemnificationagreement from non-US regulators

DTCC calls for fragmentation protection

The Commodity Futures TradingCommission and the Securities andExchange Commission have voted thatcompanies dealing in swaps of over $8billion will be regarded as swapsdealers and will face increasedoversight.

The CFTC approved the final rule by a4-1 vote jointly with the SEC, whichapproved the rule by a unanimous 5-0vote. As an initial phase-in, the ruleprovides that swap dealers will becounted if they trade more than $8billion in swaps over a 12-month period.The CFTC initially had set thatthreshold at $100 million in theproposed rule.The CFTC says it will conduct a studyof the market two and half years after itbegins to collect data on swap datarepositories and will then considerwhether the limit should be changed.The threshold would automatically be

lowered - likely to $3 billion - after fiveyears if the CFTC does not act beforethat time.“As the dealer market is dominated by largeentities, I believe the final swap dealerdefinition will encompass the vast majorityof swap dealer activity as Congress hadintended,” says Chairman of the CFTC,Gary Gensler. “For those who question thelevel of the de minimis, we considered thethreshold in the context of an overall $300trillion notional swaps market.” The final rule also makes changes to theterm “eligible contract participant.” Under the Dodd-Frank Act, a person whois not an eligible contract participant maynot enter into a swap other than on, orsubject to, the rules of a designatedcontract market. “Based upon the manycomments received, we incorporatedfurther guidance to ensure that smallbusinesses and real estate developers cancontinue to have access to swaps to hedgecommercial risks,” says Gensler.

The final rule also includes numerousexclusions, including those for hedgingactivity. An interim final rule providesthat swaps a person enters into for thepurpose of hedging price risks related tophysical positions are inconsistent withswap dealing and are excluded from theswap dealer determination. The CFTC also says it will apply theSEC’s dealer-trader distinction inidentifying swap dealers, which woulddistinguish between businesses tradingswaps on their own behalf to hedgebusiness risk and those who are acting asintermediaries.Swaps between a company’s majority-owned affiliates also will not counttoward the swap dealer threshold, whichposed a serious concern for energytrading companies. Swap dealer and major swap participantregistration will begin when the CFTCand SEC finalise the further definitionof “swap.”

CFTC and SEC Finalise ‘Swap Dealer’ Definition


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England, and numerous other banks.The FX Practices in Operations is writtenas a practitioners guide and reflects whatis happening in the real world of FXoperations, says Woolcock. It is currentlybeing implemented into the Model Codeand will replace Chapter 3 shortly, headds.The next stage for the CFP is to review therest of the Model Code and update it toadapt to the changed market environment.Woolcock says he is looking to slim downthe main body of the Model Code so that itconsists of what he describes as ‘timelessvalues,’ areas such as morals and ethicswhich do not change over time. “There’s a chunk of the Model Codewhich is absolutely perfect, still relevanttoday and will still be relevant in tenyears. That is going to be the main bodyof the Model Code, and I don’t intend tochange that,” he stresses.It will also be updated to include topicssuch as ethics of the foreign exchange

market in the electronic world. However,areas that will change over time - forinstance the organisation of NDF trading,the structure of which is likely to changebecause of incoming regulations - will beincluded in the Model Code as annexes.“We will use the Web much more as aresource,” explains Woolcock. “TheModel Code will still exist in hard copyformat but we will email inserts – theannexes – when they are updated. We willmake all the annexes available as anarchive online, so over time they willform a library that will help scholars andpeople taking the ACI education exams. Ifthey want to know how NDFs wereorganised pre-SEF regulations they willbe able to go and have a look,” he says.The CFP also gives advice and offersarbitration services on professionaldisagreements, such as alleged marketmanipulation, and this will be another keyarea of focus in 2012.“We will be looking to promote our

arbitration services for ACI membersgiven we can call on the expertise of otherworking groups such as the ACIFXC,which I vice-chair with Stephane Malraitas the Chair. This can be extended toproviding pre-proceedings expert witnessstatements,” Woolcock says. “We cancertainly provide a preliminary view of acourt case and then if an expert is actuallyrequired we can source one from withinthe organisation.”Woolcock is keen to stress the importanceof the work undertaken by the CFP, andalso the challenge facing the committee inthe coming year or two. “The ACI CFP isthe final custodian of the Model Code sonothing can be changed without the CFPapproving the additions and deletions,” hesays. “However such is the enormity ofthe task that we are working closely withother relevant bodies such as the ACIFXC and the Board of Education and areconsidering taking an intern to help ourwork in this area.”

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The International Organization ofSecurities Commissions (Iosco) and theCommittee on Payment and SettlementSystems (CPSS) have released new andrevised international standards forpayment, clearing and settlementsystems.

Outlined in a report entitled ‘Principlesfor financial market infrastructures’, thenew standards provide support for theG20 strategy to make the financial systemmore resilient by making central clearingof standardised OTC derivativesmandatory. CPSS and Iosco members will strive toadopt the new standards by the end of2012 while financial marketinfrastructures (FMIs) are expected toobserve the standards as soon as possible. The new FMI standards replace the threeexisting sets of international standards setout in the ‘Core principles forsystemically important payment systems’(CPSS, 2001); the ‘Recommendations for

securities settlement systems’ (CPSS-Iosco, 2001); and the ‘Recommendationsfor central counterparties’ (CPSS-Iosco,2004).CPSS and Iosco have strengthened andharmonised these three sets of standardsby raising minimum requirements,providing more detailed guidance andbroadening the scope of the standards tocover new risk-management areas andnew types of FMIs.The new principles are designed to ensurethat the infrastructure supporting globalfinancial markets is robust and wellplaced to withstand financial shocks.They apply to all systemically importantpayment systems, central securitiesdepositories, securities settlementsystems, central counterparties and traderepositories – collectively ‘financialmarket infrastructures’. These FMIs clear,settle and record transactions in financialmarkets. The organisations have also released twoconsultation papers on the financial

market infrastructure revisions for publicconsultation, a consultation paper on anassessment methodology for these newstandards, and a consultation paper on adisclosure framework for the standards.The last two documents are currently outfor public consultation until 15 June thisyear.William Dudley, president of the FederalReserve Bank of New York and a co-chairof CPSS-Iosco, says, “Under the newregime of central clearing for standardisedOTC derivatives trades, the role of FMIswill become even more important in thefuture. The principles provide animportant safeguard that FMIs will berobust enough to take on this role.”Paul Tucker, deputy governor, FinancialStability at the Bank of England andCPSS chairman, adds: “With these newprinciples, authorities have a good basison which to ensure a safe and stablefinancial infrastructure. It is essential thatauthorities adopt the principles, and FMIsobserve them, as soon as possible.”

Iosco and CPSS Release Standards for Centralised OTC Clearing

Trading volumes for exchange-tradedderivatives increased by 11% in 2011,according to statistics released by theWorld Federation of Exchanges (WFE).

The annual survey reports that over 24billion derivative contracts were traded onexchanges worldwide in 2011, up from 22billion in 2010. These contracts are splitbetween futures (11.9 billion) and options(12.9 billion). Since 2006, the number oftraded derivatives contracts has more thandoubled although while the 11% growthrate remains high, it is lower than thegrowth recorded in 2010 of 25%,according to the WFE.

The highest growth rate in 2011 was inthe currency derivatives segment,which overtook the commodityderivatives market in terms of thenumber of contracts traded. The growthwas primarily driven by currencyoptions traded on the National StockExchange of India since 29 October2010, according to the WFE. Thegrowth rate of traded volumes in 2011dropped to 6% when the currencyoptions traded in India were excludedfrom statistics.Interest rate derivatives saw continuedgrowth in 2011 of 9%. The WFE says thatthis product segment overcame difficult

environments in some regions with lowinterest rates, no economic growth andcredit expansion.“The increase in [exchange-tradedderivative] volumes seems logical giventhe high volatility of markets in 2011,which may have driven the need forhedging upwards. The relative preferencefor derivatives built on underlyingindices or ETFs, as compared to singlestocks, could also factor into theincrease,” says Jorge Alegria, chiefexecutive officer of the MexicanDerivatives Exchange and chairman ofthe International OptionsMarket Association.

Exchange-Traded Derivatives on the Rise

before sharing market data with them.Donahue told the committee,“Indemnification and plenary accessmust be dealt with together.Fragmentation would undermine theability of regulators to obtain acomprehensive view of the globalmarketplace, which would impact theirability to see risk building up in thesystem and provide adequate marketsurveillance and oversight.“While this legislation is a strong step in

the right direction, it is one of two keytechnical corrections that is required toensure regulators continue to have thehighest degree of transparency into OTCderivatives markets.”He continued, “The clear risk is thatglobal supervisors will have no viableoption other than to create localrepositories to avoid indemnification,which will fragment data globally. Whileeach jurisdiction would have an SDR forits local information, it would be

extremely difficult and time consuming toeffectively share information betweenregulators.”Plenary access would require USregistered repositories to provide USregulators with direct electronic access totheir data, including transactions beyondtheir jurisdictions. Regulators areconcerned that this may result in broaderinterpretation of the data in order to haveaccess to all swap data retained bythe repository.

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