Derivs - FX

The public dissemination of swap transaction trade data in Ontario is raising fears that trades will be linked to specific firms, thus influencing transaction pricing and making it difficult for firms to hedge their risk, according to lawyers.

The limited number of central counterparties and over-the-counter clearing members in the UK is hampering competition. This could result in a monopolisation of services which may lead to a less resilient economy, according to feedback received by the Financial Conduct Authority.

Average pricing on orders executed on electronic trading venues could be the key to opening up a wider migration to central limit order books from the request-for-quote trading protocol, according to investors.

The investment that a central counterparty must make in a guarantee fund, also known as skin in the game, does not protect the end client, as larger CCP contributions to default funds increase concentration risk and encourage moral hazard, according to CME Group.

The Australian Securities and Investments Commission has decided to reject a proposal that would require large foreign subsidiaries of Australian authorised deposit-taking institutions and Australian financial services licence holders to report their over-the-counter transactions to data repositories.

Investors are buying volatility on the dollar against the Swiss franc by shorting straddles on the euro versus the dollar.

The International Swaps and Derivatives Association is proposing a Standard Initial Margin Model process for multi-asset swap transactions to reduce initial margin and to promote transparency via risk-based modelling for market participants.

Investors are increasingly turning their attention to hybrid derivatives in the hunt for yield as single asset class products, particularly in interest rates, fail to produce good enough returns. As a result, market participants are combining FX options with either interest rate or credit instruments.

Market participants, particularly euro buyers, have been entering into long-dated hedges on the euro against the Swiss franc following the Swiss National Bank’s shock decision to abandon the Sfr1.20 floor to the euro last month.

Hedge funds and asset managers have been using increasingly complex derivatives strategies to play the trend of a stronger dollar as a means to achieve lower upfront premiums, according to structurers.

Investors have been buying put options on the euro against the Danish krone following the Danish central bank’s decision to cut rates in a bid to defend the fixed exchange rate policy. This has emerged despite low volumes in options trading since the Swiss National Bank’s shock move last month to abandon the euro/Swiss franc peg.

The idea that non-deliverable forwards should be cleared has never been easy to swallow for some in the FX market. So it comes as no surprise that the European Securities and Markets Authority has decided not to introduce clearing for NDFs. To implement that mandate now would mean piling pressure on market participants to clear an unstandardised, infant product at the same time as they are grappling with clearing for credit default swaps and interest rates.