Insight Michael Moradzadeh · July 18, 2011
A business is defined by what it sells. A fairly obvious proposition, one would think. Well, then, what is it that law firms sell? The obvious answer should be solutions to legal problems. But, too many law firms are not in the business of selling those services, they are oddly in the business of selling hours.
Insight Robin Powers · July 16, 2011
July 16 has Arrived…
And the world hasn’t ended.
More importantly, the financial sector hasn’t gone into a state of meltdown. While we will continue to watch as rules are debated, agency heads speak before Congress, and press releases are circulated, it is important to note that the implications of Dodd-Frank’s July 16 deadline had a stronger bark than bite.
Despite all of the headlines that the SEC and CFTC have generated as a result of their delays, it is comforting to know that these agencies are not hastily creating rules solely to adhere to the July 16 deadline. While they still have a large workload ahead of them drafting rules dictated by the Act, they appear to be working at a swifter pace then what is typically seen by most government agencies.
Insight July 15, 2011
On May 12, 2011, Vermont Senator Patrick Leahy introduced the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011 (PROTECT IP Act) to the Senate Judiciary Committee. The bill is a revised version of the Combating Online Infringement and Counterfeits Act (COICA), which was unsuccessful a year ago.
The Act’s primary purpose is to prevent websites, both foreign and domestic, from infringing on the rights of U.S. patent holders. However, the proposed procedures and methods to protect the patent holders have sparked justified controversy and opposition to the Act. As such, Oregon Senator Ron Wyden held up the bill on May 31 to prevent it from reaching the full Senate for the time being.
Insight Robin Powers · July 15, 2011
Japan’s Financial Instruments and Exchange Law (FIEL)
Japan’s corollary to Title VII of Dodd-Frank is the Financial Instruments and Exchange Law (FIEL), which went into effect in 2008. While the laws are similar, they are by no means identical. The Japanese law remains silent on topics that Dodd-Frank addresses thoroughly. Most notable among these topics are provisions regarding derivative clearing organizations (DCO’s) and clearing counterparties (CCP’s). Whereas Dodd-Frank provides a framework for how DCO’s and CCP’s must be organized, maintained, funded, and accounted for, FIEL does not give any specific guidance on CCP business continuity, outsourcing, or price transparency. Dodd-Frank imposes across-the-board capital requirements intended to minimize risk in the event of a major default and ensure the business’ functionality for at least a year. In contrast, FIEL’s minimum capital requirement for CCP’s is on a case-by-case basis. Dodd-Frank also implements collateral requirements with the purpose of reducing risk to non-defaulting members in the event that a major member becomes insolvent or defaults.
Insight Robin Powers · July 14, 2011
Swaps Experts Say Market Will Grow; Others Differ in Opinion
As the swaps market braces for Dodd-Frank impact, firms and investors differ on the anticipated changes in the newly regulated market.
Citigroup, Inc. recently released a white paper predicting that interest rate and credit default swaps will grow more than 10% by 2013 as trading risk will decrease and price transparency will increase under Dodd-Frank. Citigroup also stated that Clearinghouse increased requirements for margin will likely cause market participants to avoid marginally profitable investments. They estimate that 60% of OTC derivatives market by volume will soon be centrally cleared.
Insight Robin Powers · July 13, 2011
ISDA Calls for Coordination Amongst Global Regulators
The International Swaps and Derivatives Association (ISDA) recently announced their position that Global regulators need to first coordinate new rules for trade repositories before drafting more complex derivatives rules. The ISDA feels that G20 agreed upon reforms must be enacted prior to other rules so that there is consistency amongst market participants.
Insight Robin Powers · July 12, 2011
CFTC Increases Policing Power under Dodd-Frank
The Commodity Futures Trading Commission (CFTC) has finalized a set of five “anti-manipulation” rules with respect to Title VII of Dodd-Frank requirements.
The CFTC voted unanimously to expand the government’s ability to police potential fraud and insider trading with respect to derivatives. The CFTC established that a regulator need only show that a trader acted recklessly, as opposed to the previous standard of proving that the trader intentionally manipulated the market and created artificial prices. Scott O’Malia, CFTC Commissioner, stated that this anti-manipulation rule may confuse market participants until the agency is able to clarify how it will be used. It still remains to be seen how the CFTC will prosecute these instances of fraud and manipulation, but CFTC Chairman Gensler said this rule, “closes a significant gap as it will broaden the types of cases we will pursue and improve the chance of prevailing over wrongdoers.”
Insight Robin Powers · July 11, 2011
Banks Ask for Margin Relief
The largest U.S. banks via a joint letter on June 29, 2011 asked the Commodities Futures Trade Commission (CFTC) to remove the requirement that overseas swap transactions be subject to margin requirements, regardless of whether the swap counterparty is an affiliate of a U.S. organization. This follows on the coattails of a letter written by seven large foreign financial firms in January who asked that their margin requirements be based on their home country regulation.
Insight Robin Powers · July 10, 2011
NYSE sees Growth in Derivatives in June
Uncertainty reigns in the derivatives market as regulators on either side of the Atlantic debate upcoming risk managements regulations, but this has hardly slowed the growth of the industry.
Insight Robin Powers · July 09, 2011
Britain and EU Differ over Derivatives Reform Rules
Last Monday, July 4, the EU announced that it won’t be prepared to make any decisions regarding derivatives regulation before September.
The European Market Infrastructure Regulation (EMIR) has hit a road block as a result of the inability of the European states to reach compromise on which types of derivatives should be cleared. The U.K. is in favor of a law requiring that all derivatives be cleared to mirror the requirements imposed by Dodd-Frank, while other EU states, and specifically the EU Parliament, have opined that legislation should only include off-exchange derivatives.