Committees: Derivatives Operations Committee
July 21, 2010
Novation Consent=Confirmation Overview
The industry is preparing for the 9/30/2010 go-live date for credit Consent=Confirmation one-step novation process. The readiness workstream of the Credit Implementation Group has put together an overview to raise awareness of the changes and to provide information of the changes to the novations process. The overview is available HERE.
July 21, 2010
Regulatory Reform – Senate Colloquies
The Senate has engaged in scripted conversations between Senators that take place on the Senate floor. These floor speeches are called colloquies and may provide regulators more information about the original intent of the new legislation in the Dodd-Frank Bill. The colloquies were compiled by Davis Polk, and are available HERE. The derivatives colloquies and floor speeches begin on page 27.
July 16, 2010
Letter from the SEC
No-action letter from the SEC to CME on 17 f 6
July 13, 2010
Updated ICE Responses to Buy Side Clearing Matrix
ICE has updated its responses to the AMF Buy Side Clearing Questionnaire. Please find the updated matrix here.
May 18, 2010
Trade Reporting Repositories
There is an industry commitment to provide more transparency to regulators on the derivatives markets. The Derivatives Operations Committee has received updates on both the Equity Derivatives Trade Reporting Repository, which is going live in July 2010; and the Interest Rate Trade Reporting Repository, which has been live since January 2010. Links to both repository presentations are provided below:
Equity Derivatives Trade Reporting Repository
Interest Rage Trade Reporting Repository
April 28, 2010
Consent = Confirmation
Important information was shared on Novations with the AMF Derivatives Operations Committee at the April 28, 2010 committee meeting. The current two step novation process will be replaced on 9/30/2010 by a single step process where the consent and confirmation is provided in a single step. For more ifnormation, please refer to the presentation provided by Sapient.
Industry Initiatives Handbook
Sapient has shared their Industry Intiatives Handbook with the AMF Derivatives Operations Committee. This handbook provides AMF members an excellent reference for derivatives commitments by asset class, stemming from regulatory commitments as well as industry wide service provider deliverables.
March 12, 2010
Comparison of Customer Protections - DRAFT
This matrix, prepared by Davis Polk, titled “Comparison of Buy-Side Customer Protections in Various Clearing Environments” helps asset managers understand the differences between the current OTC credit default swaps, commodity futures traded on CME, and CME and ICE client clearing platforms. Please note that this matrix is a draft for discussion and is subject to additional comments from the clearing platforms (they have already provided their main input to the matrix), and continuing review by the AMG CDS CCP Working Group, as well as comments from the AMF Derivatives Operations Committee members.
March 1, 2010
Industry Commitments
Headstrong has prepared a simplified version listing all the industry commitments from the March 1, 2010 letter to Fed (applicable to all derivatives classes) in spreadsheet format.
March 1, 2010
Industry Letter to the NY Fed and Other Regulators
On March 1st, the latest industry commitments were shared with supervisors in a letter that sets out goals and commitments which will move the derivatives industry towards improvements. The letter and the accompanying documents can be accessed at the following link:
http://www.newyorkfed.org/newsevents/news/markets/2010/ma100301.html
February 22, 2010
Policy Perspectives on OTC Derivatives Market Infrastructure
For your information, click the link to a recently released white paper prepared by the staff of the NY Fed titled "Policy Perspectives on OTC Derivatives Market Infrastructure".
December 8, 2009
Buy Side Access to CDS Clearing
The AMF Derivatives Operations Committee has disseminated information that will help the asset management industry begin clearing CDS on central counterparty platforms. The committee recently asked the CCP platforms to respond to operational questions that asset managers need to consider in connection with clearing CDS.
Click here to view "The Buy-side CDS Clearing- Questions to CCP's CME".
Click here to view the "The Buy-side CDS Clearing- Questions to CCP's Eurex".
Click here to view the "The Buy-side CDS Clearing- Questions to CCP's LCH Clearnet".
View the "AMF Survey Buy-side CDS Clearing Matrix"
June 2, 2009
Fed Letter and Summary of Commitments
The industry letter to the NY Fed and other regulators was published on June 2, 2009.
Click here to view "The Industry Letter - June 2, 2009"
Click here to view the "Summary of OTC Derivatives Commitments"
Click here to view the "Summary Table"
The letter reiterates the industry's commitment to reducing systemic risk in the over the counter derivative markets through the following:
- Clearing for OTC standardized derivative products in these markets.
- Mechanisms at central counterparties to assure segregation of customer collateral and portability of accounts in the event of counterparty default and customer access to CDS clearing solutions by 12/15/09.
- Implementing data repositories for non-cleared transactions to ensure universal recording of trades in a trade repository to enhance transparency and disclosure of the OTC derivatives market, and to assist global supervisors with oversight and surveillance activities. Specific commitments for CDS (7/17), IRS (12/31) and Equity Derivatives (July 2010).
- Delivering robust collateral and margining processes, including portfolio reconciliations, metrics on position and market value breaks, and improved dispute resolution mechanics.
- Updating industry governance to be more inclusive of buy-side participants.
- Continuing to drive improvement in key operational areas including submission and matching, electronic processing across asset classes, standardization of confirmation documentation (specific focus on equities) and focus on reducing aged confirmations.
March 19, 2009
3-Way Reconciliation White Paper
The reconciliation process of OTC derivatives is an important tool in increasing the efficiency of risk management related to the derivatives market. Asset managers are keen to improve the reconciliation process in order to handle higher OTC derivatives volumes and to maintain prudent operational and risk controls. In order to do so, the Asset Managers Forum 3-Way Reconciliation Working Group developed recommended guidelines on the frequency of reconciliation and on resolving breaks. These guidelines, along with the most common reconciliation data points for reconciliation, are set forth in the 3-Way OTC Derivatives Reconciliation White Paper. These guidelines are now open for industry comment, the comment period ends on April 30, 2009. Written comments should be sent via email to Elisa Nuottajarvi of the AMF staff.
Click here to read the 3-Way OTC Derivatives Reconciliation White Paper
Note:
The 3-Way Reconciliation Working Group will host a roundtable on Monday, May 11th to discuss the white paper and its recommendations. The Working Group comment period is extended until May 15th.November 11, 2008
Industry Makes Further OTC Derivatives Commitments to NY Fed
October 31, 2008 - (Reprint of NY Fed Press Release) The Federal Reserve Bank of New York welcomes the letter released today by major market participants to further strengthen the operational infrastructure for over-the-counter (OTC) derivatives. Consistent with the objectives of the March 2008 Policy Statement of the President's Working Group on Financial Market Developments, market participants outline in this letter concrete plans for building a stronger integrated operational infrastructure capable of supporting the important and rapidly growing OTC derivatives market.
The commitments presented in this letter will help address weaknesses in the OTC derivatives market. Although efforts by the Federal Reserve and other U.S. and European regulators over the past three years have led market participants to significantly improve many operational elements of the OTC derivatives infrastructure, financial market events have demonstrated that broader action is warranted to address additional market design elements.
Click here to read October 31, 2008 Industry Letter
Click here to read October 31, 2008 Summary of Commitments
Click here to read about DTCC Plans to Provide Trade Information Warehouse Data
The following areas constitute our central priorities for addressing both operational and market design concerns for OTC derivatives:
Institute a Central Counterparty (CCP) for Credit Default Swaps (CDS). As the primary authorities with regulatory responsibility over U.S. CDS CCP proposals, the Commodity Futures Trading Commission, the Securities and Exchange Commission and the Federal Reserve have strongly encouraged CCP developers and market participants to accelerate their efforts to bring a CDS CCP to market. The U.S. regulators are cooperatively reviewing the risk management designs of the U.S. CDS CCP proposals with the objective of granting regulatory approvals as soon as they are determined to meet risk management standards. We are hopeful that one or more CCPs can begin operations in November or December 2008, enabling market participants to rapidly move trades onto a CCP.
A well-managed CCP for credit default swaps will reduce the systemic risk associated with counterparty credit exposures. In addition, a CCP can help facilitate greater transparency of market prices and volumes and support an open trading environment that includes exchange-traded CDS contracts.
Reduce Levels of Outstanding Trades via Portfolio Compression. Market participants continue to reduce the number of outstanding CDS trades through multilateral trade terminations (tear-ups) which lowers outstanding notional amounts, reducing counterparty credit exposures and operational risk. Regulators have instructed firms to maximize the efficiency of trade terminations in CDS tear-ups and have begun monitoring the detailed results to ensure the fullest participation. To date in 2008, tear-ups have eliminated more than $24 trillion of CDS trade notional amounts, reducing the notional amount outstanding by more than one-third. Expanding the efforts from CDS, market participants will start coordinated trade compression cycles for the largest OTC derivatives asset class, interest rate derivatives, in early 2009.
Enhance Market Transparency. Regulators are also seeking to increase the information about CDS that is available to the public. In that regard, we welcome the announcement today by the Depository Trust & Clearing Corporation (DTCC) to publish aggregate market data from the central repository it maintains on credit derivatives. Starting Tuesday, November 4th and continuing weekly, DTCC will release a set of aggregate stock and weekly trade data, including the levels of both gross and net notional CDS traded on the 1,000 largest CDS reference entities. Regulators will continue to work with market participants and service providers to further expand the public release of market data.
Continue Operational Improvements. Regulators continue to demand that market participants improve the back office processes that support OTC derivatives trading. The attached letter details how those efforts are expanding to encompass all major OTC derivatives asset classes and to improve collateral management practices in these markets. Key long-term objectives and milestones in the letter include:
- Use of central counterparty clearing for trades to significantly reduce counterparty credit risk exposure and notional amounts outstanding.
- Target of submitting 85% of eligible CDS trades (including novations) on T+0 by June 30, 2009. (Current target is submitting 92% on T+1).
- Increasing the portion of equity derivatives eligible for electronic matching from 40% to 60% and raising the matching target to 85% for all counterparties.
- Developing plans for central trade repositories for equity and interest rate derivatives.
The New York Fed will continue to work with domestic and international industry supervisors to monitor progress and encourage further effort to improve OTC derivatives operational infrastructure.
November 11, 2008
The AMF Derivatives Operations Committee drafted an OTC Derivatives Audit Confirmation Paper which describes the issues confronting asset managers when auditors are confirming OTC derivative positions and suggests improvements to the process. Please submit any comments to greis@sifma.org. The Committee’s next step is to meet in person with representatives of the Big 4 Accounting firms to discuss the paper and gain their input and eventual support.
September 23, 2008
Credit Event Terminology
The Derivatives Consulting Group’s Training Academy has made available a quick reference guide to the terminology surrounding credit events. Please click here for the document.
August 26, 2008
Update from the DTCC Deriv/SERV and Custody Working Group on the central settlement service for the buy-side. The letter is an excellent overview of the service and the benefits for the buy-side. It also addresses the buy-side commitments and requirements to join the service.
August 20, 2008
New Industry Goals for OTC Derivatives
On July 31, 2008, the industry submitted the eighth in a series of letters to the New York Federal Reserve that makes further commitments to improve the processing of OTC derivatives. In the letter, the industry agrees to:
- Increase the timeliness and accuracy of immediate post-trade processing of credit derivatives beyond the target levels set in March 2008
- Develop a robust central clearing infrastructure for OTC credit derivatives with the objective to launch index products in 2008
- Reduce the number of outstanding credit derivatives trades through multilateral trade terminations
- Incorporate an auction-based settlement mechanism into standard credit derivatives documentation by the end of 2008 to increase the certainty of a transparent and orderly settlement process following a credit event
- Process 75 percent of eligible OTC equity and interest rate derivatives trades on electronic platforms by January 31, 2009; and
- Improve collateral management practices
Through SIFMA’s participation in the Operations Management Group (OMG) and in collaboration with the International Swaps and Derivatives Association, Inc. (ISDA®) and Managed Funds Association (MFA), the Association will work on behalf of its buy side members and other market participants to foster these higher standards in derivatives processing.
Click here to read July 31, 2008 Letter to the Fed.
Click here to read July 31, 2008, Letter Supplement.
Click here to read Industry Implementation Plan.
Click here to read Summary of Industry Commitments.
Click here to read SIFMA Press Release.
June 12, 2008 —Industry Event on Derivatives Initiatives
SIFMA’s Asset Management Group, ISDA® and Managed Funds Association are providing education and raising awareness on the industry’s derivatives processing goals, which were outlined in a letter to the NY Federal Reserve in March 2008. The three trade associations hosted a live session on June 5, 2008, that addressed operational enhancements in the credit derivatives market.
Click here to listen to an audio replay of the June 5th Event.
Please note that this audio replay is for industry members and is not open to members of the press. To request a password, please contact Bianca Constance.
May 14, 2008 OTC Derivatives Market - Vendor Profiles
As an important part of the derivatives processing initiative, the AMF is soliciting product/service profiles from vendors in the OTC Derivatives markets in order to educate asset management firms on the many available options to automate the processing of OTC derivative transactions as well as position reconciliations, novations and other processing aspects. For more information click here.
March 27, 2008 — OMG Letter to the Federal Reserve on Credit and Equity Derivatives
The Operations Management Group submitted today a letter to the Federal Reserve Bank of New York, which outlines its commitments to improve credit and equity derivatives processing. In the letter, the OMG commits to:
improve levels of timeliness and accuracy in the immediate post-trade process
automate novations processing by the end of 2008
universal use of standard reference data and,
full implementation of centralized settlement among major dealers by September 2008.
Asset managers commit to helping the process by submitting correct allocations on trade date.
Click here to read the OMG Letter to the NY Fed
Click here to read the Fed’s Press Release
Click here to read SIFMA’s Press Release
These topics will be among several items discussed at the next AMF Derivatives Ops Meeting on Tuesday, April 22, 2008.
Asset managers increasingly use OTC derivatives to manage portfolio risks and to improve portfolio performance. As the growth and complexity of the OTC derivative market continues to increase, the buy side faces new operational challenges. One of the top priorities for asset managers is to continuously seek improvements in the derivatives processing environment and identify opportunities to reduce related operational risks.
The AMF Derivatives Operations Committee strives to address the current key operational challenges affecting OTC swaps and derivatives, streamline and automate the derivatives processing environment and work with broker-dealers, utilities, vendors and service providers to represent the needs of the asset management community.
The Committee is co-chaired by Ila Eckhoff of BlackRock and Neil Wright of State Street. The Committee’s AMF Steering Committee liaison is Lara Gilman of Fidelity Investments.
For more information regarding this Committee please contact Joe Sack of the SIFMA/AMF staff.