Derivs - Credit

Donald Trump’s shock US election victory in the early hours of Wednesday caused a shockwave to course through derivative markets overnight. But by midday in London traders said the overall reaction was much more orderly than in the aftermath of the UK vote in June to leave the European Union - and by close of business some markets had made full scale retrenchment.

Derivatives markets across asset classes are projecting increased confidence of a Hillary Clinton win in Tuesday's US presidential election, but also revealing concern that volatility could then evaporate from markets for the rest of the year.

A shift of momentum in the US presidential race has sent tremors through derivatives markets this week, with equity implied volatility ramping up, credit index spreads widening and the Mexican peso slumping against the dollar.

Four banks have teamed up with law firm Simmons & Simmons to introduce market standard documentation for use in listed and unlisted repackaging transactions, in a move that they hope will ease hedging counterparty concerns for investors and help drive activity in this part of the market.

IHS Markit has integrated services offered by SmartDX, the capital markets division of Smart Communications, into its Counterparty Manager platform to automate documentation handling under the ISDA 2016 credit support annex (CSA) for variation margin.

Credit investors, whether in cash or synthetics, often welcome corporate restructurings by distressed firms. Job cuts, rationalisation of operations and, in particular, asset sales are usually regarded as bondholder-friendly actions.

JP Morgan’s head of CEEMEA credit trading has left his job, according to market sources.

There is no shortage of factors that have troubled market participants this year: Brexit; US monetary policy direction; fragility in European banks; oil prices. All of these issues, and others, have caused credit spreads to widen at various intervals in 2016.

Rising costs for derivatives clearing and difficulties gaining access to dealers present a mounting challenge for small end users in the US and Europe, some of which may have to find other means to hedge risk, a study by the International Swaps and Derivatives Association has found.

The European Securities and Markets Authority (ESMA) is to hold an open hearing on its plans to introduce an industry benchmarks regulation, having recently published draft technical standards.

The European Parliament will fast-track its approval of margin rules for uncleared swaps, adding certainty to the deadline for implementation but also accelerating the workload for the first wave of major banks that will need to comply.

There was both palpable relief and vexation among derivatives market professionals this week as the European Commission approved, albeit with amendments, rules for collecting margin on uncleared derivatives. Although this traversed a key hurdle as Europe seeks to catch up with Canada, Japan and the US, it also brought into question why there had been a delay in the first place.