Central Clearing is a key component of regulatory reforms for OTC derivatives. A centrally cleared transaction will be cheaper than a bespoke bilateral. This extract, from a paper called 'The Economics of Central Clearing: Theory and Practice' by Craig Pirrong, explains why: Executive Summary (pages 2-3): Regulations requiring the clearing of certain OTC derivatives through central counterparties ('CCPs') are causing a profound change in market structure and trading practices

The European Market Infrastructure Regulation (EMIR) and Markets in Financial Instruments Directive (MiFID) are European Union (EU) regulations. Once the United Kingdom (UK) leaves the EU, they are likely to implement elements of these directives into their own law, as these regulations are in line with guidelines set out by G20, of which the UK is a signatory. Many UK financial institutions have already had to implement the EMIR and MiFID standards in order to comply, and th

The Markets in Financial Instruments Directive (‘MiFID II’) and the accompanying legislation, Markets in Financial Instruments Amending Regulation (‘MiFIR’), came into force on 3 January 2018. The objectives of this directive are to increase market transparency, efficiency and safety in the financial markets. MiFID II applies to EU investment firms and to financial activities undertaken in the EU. However, there is an extra-territorial aspect to the directive as well. A non-E

Finally some clarity ... see what Kelle Gagné from Edward Nathan Sonnenberg has to say by clicking on this link above. Whilst the South African market continues to wait for the margin rules for uncleared otc derivatives to be finalised and published by the regulator, it is not too soon to start thinking about how to bring your collateral agreements up to date and in line with regulatory requirements. ISDA published the variation margin-compliant CSA (2016 VM CSA) and it is an

As mandatory clearing of certain standardized OTC derivatives products starts to gain traction globally, as a potential Clearing Member (CM), it is pertinent to identify what factors one should consider in choosing a central counterparty clearing house (CCP). Many CCPs have sprung up in the market, each offering slightly different services, and not all CCP rules are consistent. For example, not all CCPs have the same default waterfall mechanics, or standardized events of defa

This fact sheet explains the many different industry sectors who use derivatives to effectively manage their business and financial risk. Who Uses Derivatives - and Why? If you would like to find out more about the legal agreements used to document OTC derivatives transactions, come along to DeriviDoc courses as follows: The ISDA® Master Agreement Tuesday 11 July 2017 in Johannesburg Collateral and the CSA Master Agreements Wednesday 12 July 2017 in Johannesburg #derivatives

​With central clearing of standardised OTC derivative contracts gaining traction under the EMIR and Dodd Frank regulations, market participants are becoming more focussed on diversifying the types of assets that they can post to the clearing house as collateral. This Reuters article gives an interesting insight into how LME clearing house is permitting commodities to be posted as Initial Margin for commodities trades that are cleared. Ultimately, once all the margin rules are

On 20 April 2017 the Registrar of Securities Services published the second draft of the regulations relating to the reporting of over-the-counter derivatives transactions in terms of Section 58 of the Financial Markets Act. The comment period for these draft regulations closed in mid-May. The main aim of the reporting obligations is to create transparency in a previously opaque market, and allow the regulators sight of the OTC derivatives trades, which are being done in the m

During the recent ISDA® AGM held in Lisbon in May, a panel discussion highlighted a few of the challenges that have arisen in the clearing space, and this article aims to highlight some of these. Regulators have imposed higher levels of margin on uncleared OTC derivative transactions. Regulators have purposefully done this in order to encourage parties to clear transactions, since clearing is designed to reduce systemic risk. The concern is that there are certain products, wh

Jeremy Taylor, strategy owner, capital markets, at GFT, discusses what constitutes an effective MiFID II programme, and where firms should be in terms of preparing for this very significant new piece of regulation. Read his article here. If you wish to know more about other regulatory changes, which will impact the way in which OTC derivatives will be traded with counterparties in SA and in the EU and US, register for our course: Regulatory Update - How the Financial Markets

Cliffe Dekker Hofmeyr gives an update as to what the status is of the South African margin rules. The Financial Markets Act is being implemented over a phased-in timeline. Read it here. To find out more about how this new legislation will impact the way in which we trade OTC derivatives in South Africa, register for our course: The Financial Markets Act and its Impact on the OTC Derivatives Market (18 May 2017, Johannesburg - register now by clicking here) #FinancialMarketsAc

[This article was first published by Rand Merchant Bank in 2011.] Over the years companies have used derivatives transactions increasingly as a means to hedge and manage their business and financial risk. However, following the financial crisis in 2008, and in particular the collapse of Lehman Brothers, more scrutiny has been placed on the derivatives business, and how it can potentially wreak havoc in an unregulated environment. The financial crisis highlighted the need to e

On 21st July 2016 National Treasury published the third draft of the ministerial regulations under the Financial Markets Act No. 19 of 2012, as well as several draft notices relating particularly to OTC derivatives and trade repositories. These are necessary in order that South Africa continue to advance financial reform and regulation in line with G20 recommendations. The draft regulations dealing with margin requirements for non-centrally cleared OTC derivatives were not re

This will require every Foreign Financial Institution (FFI) to enter into a voluntary agreement (or an Inter-Governmental Agreement) with the Internal Revenue Service (IRS) in the US, to examine every account for a US ownership connection (individual or corporate shareholder in excess of 10%), and to report on such account holders to the IRS annually. Failure to comply with these reporting requirements will result in a punitive withholding tax of 30% of the US$ transactions t

An SA entity with no presence in the EU would not be subject to EMIR. However, if that SA entity trades with an EU counterparty, then the EU counterparty would need to change the way in which it transacted with the SA entity in order for the EU entity to be EMIR compliant. If the EU counterparty did trade with the SA entity in a way which was not compliant with EMIR, the EU counterparty would be liable. The likelihood is though that if the SA entity cannot trade in an EMIR co