7 days in 60 seconds – Emir, spoofing and central clearing

The week on www.risk.net, November 20–26, 2015

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SPOOFING conviction in US raises alarm among commodities traders

EMIR mandatory clearing could start as soon as June 18 now review period is over

CENTRAL CLEARING of swaps in Europe will saturate existing clearing members, fears Irish central bank

US TREASURY repo spreads could surge if DTCC goes ahead with $50bn liquidity facility, banks warn

SPOOFING conviction in US raises alarm among commodities traders

EMIR mandatory clearing could start as soon as June 18 now review period is over 

CENTRAL CLEARING of swaps in Europe will saturate existing clearing members, fears Irish central bank

US TREASURY repo spreads could surge if DTCC goes ahead with $50bn liquidity facility, banks warn

 

COMMENTARY: CFTC on target?

Back in 2012, as the Dodd-Frank Act came into force, there were good reasons to question the impact it would have on some forms of financial crime – particularly the ability and willingness of the Commodity Futures Trading Commission (CFTC) to use its new powers to prevent market manipulation through 'spoofing', and prosecute the traders doing it. Three years later, some of those questions have been answered with the first successful CFTC conviction in a spoofing case. (Last year, former CFTC enforcement head David Meister highlighted this as a priority and told us to "stay tuned").

But as trader Michael Coscia prepares to appeal against his prison sentence, market participants worry the CFTC's anti-spoofing rules may be too vague for safety. And there's also room to question whether spoofing is actually the right focus for the CFTC's enforcement efforts – with front-running, arguably far worse for market functioning, still operating with effective impunity. Spoofing is one of many high-frequency trading predatory practices reported in the US Treasury market – causing some participants to worry algorithmic traders have been given virtual carte blanche to spoof, layer and self-trade.

Separately this week – but also spanning the worlds of electronic trading and ethics – a group of 10 banks were accused of colluding to preserve swap trading profits in a new class-action lawsuit on November 25. Tradeweb and Icap are also defendants in the suit. Co-lead counsel Quinn Emmanuel recently won a $1.8 billion settlement from dealers over claims of anti-competitive behaviour in the market for credit default swaps.

 

QUOTE OF THE WEEK
"The big asset management firms are not at the same level [on operational risk management] as the banks that have been doing this for 20 years. It's a great opportunity for asset managers to learn from the banks" – Lourenco Miranda, AIG.

 

STAT OF THE WEEK
For the fiscal year ending in June 2014, the International Finance Corporation recorded net income of $1.5 billion from investments committed in more than 100 developing countries. For the year ending in June 2015, however, net income plummeted to $445 million – a 70% drop.

 

ALSO THIS WEEK

US regulators not backing down in leverage ratio stand-off
China approves Isda framework for central bank forex trades
Distributed ledgers could impact FMIs, report finds
Foreign exchange says goodbye to self-regulation
Texas utility finds Dodd-Frank a source of frustration
Bank exits from commodity trading hurt US power firms

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