Regulatory Effects on FX Cash Markets

8/7/2019 Regulatory Effects on FX Cash Markets

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A Wall Strt Systms and ClintKnowld insiht papr

APRIL 2011

WHITE PAPER

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PAGE 2 OF 20 Edition 1

ReguLAR eeCS X CAS ARKeS: W e bAKS ARe PRePARIg

Copyright Wall Street Systems & ClientKnowledge 2011

IRuCI

Regulator are reodg to te aal r t a rat o rooal or te aal etor. wat

eet are te gog to ave o te fX aret? so ar, te regulator rooal rovde a road

raeor ad dreto or age te fX dervatve aret, ut a o te detal rea to e

eed. aer oe a overve o te varou regulato atg te fX aret t

a duo o o te a are rearg. i order to do t, cletkoledge a oe to 25

rereetatve ro a ad teolog rovder. e role o tee rereetatve rage ro rot

to a oe ludg ead o fX oerato, e-fX ad treaur a ell a eor trader. ba ro

uroe, nort era ad a ere luded. e fX volue o te a luded t reear

aout or ore ta 75% o te dal turover o te fX aret.

uroe: 3 gloal a; 7 regoal a

s: 3 gloal a; 1 regoal a

a: 1 gloal a; 8 regoal a

his papr xplors: e otetal at o te regulato o te fX aret

ke ga urret orlo ad te oluto

ho a are rearg or te age

e urget eed or a ad regulator to det ratal oluto to te ue raed ad

rate tulated te regulato

ltoug te regulato addre dervatve rodut eall, t lel tat te age ll e elt

ever artat te fX aret. catal requreet, age exeuto, adator learg,

r tgato roee ad trade reortg requreet ll evtal reult age to ue

odel, aetg all aet o te aret. aer et out a gt to a reato to terooed regulato ad ole aret age tat gt are. e ajort o te aer addree

rodut ad artat ave ee rooed to e regulated: redoatl a ad

aal ttuto.

e e to o deate glgted te reear lude elgle rodut ad outerarte;

o ad at ll eed to e leared; te deto o a exeuto alte (sf) ad orgaed

tradg alte (f); olae ad audt. Regulato evolvg at ae ad a udertadg

o t o eetal or a ad aal ttuto a te eg to detere te ratal

lato o tee age. Regulato urretl gve a raeor ad dreto rater ta e

requreet, ad te fX aret egg to ll te ga eve toug oe auto a eed

to e revted a te detal o regulato eoe learer.


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PAGE 3 OF 20 Edition 1 Copyright Wall Street Systems & ClientKnowledge 2011

CeS

Introduction 2

Contents 3

Summary of findings 4

Overview of regulations 5

Derivatives 7

Cash market 9

Technology 11

Relationships 14

Global Conformity 16

Moving Forward 17

Glossary of terms used 19


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SuAR IIgS

wat a eerged troug t tud te olext o te tuato ag a e loog at

o to deal t fX rodut te lgt o te e regulato. e regulato do ot oe t a

uer-aual ad rovde, a te rooal tad, ol a raeor oe to terretato.

ma a are ag u to oe o te allege aead, ad are rearg or te ot trget

terretato, ad ort-ae earo. e tg or erta egageet t te ue vtal,

eeall a tere ll ot e te to are e leetg a eear age.

fro te a terveed t reear, te e ot tat are lear, aug tat regulato ll

lude fX, are:

ll gloal a eel te lqudt o a fX ould e aeted eve t ot luded te

regulato. e age ll aet te etre fX aret eaue te rodut are deedet o ea

oter ad tere a olt tat oe orgaato a ae a deo to lear all rodut or

oveee.

94% o a tougt ter orlo ould age gatl a varet o a:

peroel lato ro e jo role

rgaato o fX de

eolog ot rot ad a oe

88% o a t tere ll e ot lato ro teolog, ro ot ugradg extg, ad

leetg e te. xtg teolog a eed alterato to ol t regulato ad

te aret ll eoe ore eletro, t gat otetal ot lato.

ere a la o lart aroud urret te ll ol t learg ad sf/f

retrto

ne/deret teolog ll ave lato or orlo, ll alo ur ot

Relato etee artat te fX aret ll age a outerarte ll o logere ale to trade dretl t ea oter or erta rodut ad ll tead trade ore troug

teredare u a exage.

e relato o a t ter let ll age a oe oer learg, le oter add

learg to ter re roerage erve

ll a loog at te regulato are rutrated te la o ratal deto. e gloal ature

o te fX aret addg olext a a tr to or out te detal o ter uture tradg,

artularl t gloal otee regulato ad ultle learg rovder (t outre

ad ro-order).


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veRvIeW ReguLAIS

e regulator ladae o te aal aret udergog a erod o gat age

et to lead to oe o te ot atul ad exteve aal aret traorato tat e ave ee

gloall.

mu o te regulato o atg a ad te aal aret are a dret reoe to te

gloal aal r, ad ave ee drve otet ade te -20 ato. i seteer

2009, -20 leader agreed tat:

ll tadarded c dervatve otrat ould e traded o exage or eletro tradg

lator, ere arorate, ad leared troug etral outerarte te ed o 2012 at te

latet. c dervatve otrat ould e reorted to trade reotore. no-etrall leared otrat

ould e ujet to ger atal requreet.

i Jue 2010, -20 leader urter reared t otet ad addto ledged to eed u

te leetato o eaure tat ll rove te traare ad regulator overgt o c

dervatve a teratoall otet ad o-drator a.

e regulator a to eetvel otor ad uerve te aret oerato trodug varou

gudele. ee rooed gudele ll ave a eet o te fX aret a a ole, ludg te fX

a aret due to te terrelated ature o aret atvte fX. Varou regulator ode gloall

ave outled rule, are exeted to oter a ore eet aal aret. i te s, Dodd-

fra lude all te regulato o dervatve. i uroe, te uroea coo a adoted te

uroea maret iratruture Regulato (miR) to addre ue relatg to c dervatve, etral

outerarte ad trade reotore, ll or t te e mfiD oue o exeuto

ad ll e te rodut to e overed ot et o regulato. i addto, sm (uroea

seurte ad maret utort) a ee et u to eore te aderee o all te artat te

aret.

eerall, oe o te rule overla le oter are oletel deedet o ea oter. u,

artat te fX aret ll eed to reod to a ar-reag et o regulator age; te

ollog tale gve a re overve o te varou regulato tat ll aet te fX aret. it dete

te arte tat ll e aeted, e te regulato are exeted to e leeted ad te ratoale

ed te regulato.


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Who What Whn Why

cororateae r

hedge ud

ter aalttuto

coatat otrol

a ureddeotorttuto

foreg rtreated a

a oldgoaeuder te

iteratoalbag t

ba

mfiD ojutot miR

()

bael iii

(loal)

Dodd-fra

(s)

VolerRule

(s)

ivetetorgaato

xeted totae eeted 2012

ileetatoerodJauar

20132019

fal rule lle dued

ro Jul2011, t

leetatoro 2012

etve date:arler o Jul2012 or 12ot ateruae oal rule

leetg trequreet

stregte vetor rotetotrougout te

irove traare adee o aal aret

ure a g qualt oexeuto

provde a raeor orregulatg order exeuto

irove te ag etoralt to aor varou o

stregte a traaread dloure

proote aal talt

stregte te aal te

cotra r tag atvtat ag ette ad redueeulatve tradg

et regulato o aalaret, ludg reaedaoutalt ad traareo dervatve

irove r aageetad goverae

hg freque radg: hf trader aove a ertatreold are requred to e autored a vetet r ujet to eetg orgaatoal ad atal requreet,ad r aageet olgato

clearg ad trade reortg or degated orgaato

credt ratgagee

a adoted a la adatg regtrato ad dretuervo

Reortg olgato or oodt dervatve

fud aove a erta ze ould e autored ad olgedto reort data to uervor

madator tradg requreet or c dervatve pre ad ot-trade traare requreet or equte

ad o-equte; otrol o dar ool rgaed radg falt (f) clearg ad trade reortg

ba

er 1 catal: u atal requreet ll eraed u to 4.5%

catal oervato uer o 2.5% couterlal uer t a rage o 0 2.5% Retrto o aout o dvded, are ua ad

oue or a t atal rato le ta 2.5% o aorg aat or teall ortat a

ba

iureddeotorttuto

hger atal requreet or a oo g to al rule: steall ortat oae

are requred to ave a de-to-equt rato o 15-to-1 sa xeuto falt: a are requred to e traded

o a exage or sf madator learg Regulato o dervatve/a: fX a ad

fX orard qual a a ad ut e reorted toa a data reotor

pro-tradg: e Rule ould retrt a ro agerta te o eulatve vetet te are otdoe o eal o ter utoer

tvte relatg to edge ud ad rvate equt ud:e Rule ould rot a ro vetg adoorg a edge ud or rvate equt ud


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eRIvAIveS

What ar th rlations oin to affct?

94%ofrespondentsthinkthatFXswapsshouldbetreateddifferentlyfrom

otherswaps

e o te e uertate urretl ag a oer te regulator oto tat ll e tae

regardg te adator learg o fX a ad orard uder Dodd-fra te s (ad a

uequet deo ter o leglato). Dodd-fra delegate te deo o eter fX a

ad orard ll e luded te leglato to te s reaur. le fX a ad orard are

exluded te regulator (eter oletel or artall out to a e teor, u a 3 ot or 1

ear), te ll e luded a dervatve te e regulato alog t fX oto ad teor

tree u ore dtt fX aret gt eerge a, le dervatve (iRs, ccy a) ad

olex dervatve (exot oto). coulor learg, trade reortg ad exeuto o aroved

veue (a exeuto alte, sf ad exage) ll rg aout a ea age te fXdervatve aret, ad ol te ole fX aret. not all a are oved te arguet or

ludg fX a te regulator age.

TheregulationisclearlyaimedatOTCderivativeproductsandtheregulationissensibleforproductssuchascreditderivativesandinterestratederivatives.IthinkwhattheFXmarketisfindingandpotentiallytoanextenttheregulatorsaswell,isthattheFXmarketisOTCandthereforetherisksaredifferent.

op-tir ank (erop)

e regulator are allg or, ad regulatg or, a ore traaret aret trodug ore

oerou requreet o exeuto, trade roeg ad reortg. a ell lead to a ledfX dervatve aret, ere ger tradg ot ad reaed traare lead to le rotale

rodut. e etve to ell tee rodut ould e orreodgl loer, ule, le ot, a dee

eet eletro aret develo a a reult t deeer lqudt o ore ear.

curretl te e-aret or fX dervatve, ro nDf to oto, ar le etaled ta t or

ot ad t gt tae a le eore te det o lqudt o te ot aret aeved. i roved

lqudt ot aeved, te fX dervatve aret r eog le eet ad le lqud, eeall

ot are aed o troug deed read. wder read te aret ould aet te g

reque tradg odel ad otetall ave a o-o eet to a urter reduto lqudt a ort

ter tradg odel d eer oortute. e a fX aret dee, lqud ad gl eletro

otrat to dervatve rodut. i order or te regulato o dervatve to or o a ratal level,

tere eed to e a ore ature e-aret ta tere o; oever, t aot e regulated to

extee due to te ratruture requred ad aret rate tat ol develo over te ad tull uort ro a de rage o aret artat. e fX dervatve aret rogreg toard

der eletro exeuto, oever tere a gat ga etee urret rovo ad at ll

e eeded.

ow will rlations affct workflow?

89%ofrespondents,whicharelookingintotheimpactoftheregulations,

expecttheregulationstoimpacttheirworkflow

ba eleve te age rougt aout tee e regulato ll e oeratoall allegg

artat ll eed to e equed to trade eletroall, lear etrall ad reort to a trade

reotor. e ratruture ad oeratoal roee tat ll altate tee requreet eed to

e develoed ad leeted, oe regoal uroea a oted out: e ll eed to ae

age to our ratruture te dealg roo; e ll eed to earate etee trade tat eed

to e leared ad toe tat ot e leared. ll requre e te or odato to


8/20




extg te, tur ea te a ta (trader, ddle oe ad a oe) ll ave a

requreet to lear ad adat to a e te o tradg a ell a e ad addtoal oeratoal

requreet.

wle tere are e-te or oto- ad a-exeuto, t a develog aret ad o ea

ature or deread. b deto aret ature rt t a rodut a te eoe ore

tadarded ad lqud, olloed te uderlg dervatve. e regulato oued o dervatve

rodut, ut relat o a ature e-traded uderlg a aret tat ll develo to tadarded

dervatve rodut tat te aret a exeute traaretl ad lear eetl. e a ad te

dervatve ooet are terted ad te earato rooed a aue role exeutg

olex rodut eletroall. for exale, fX oto rarl trade va volatlt, ut te uderlg

ot ad orard aret are eetal ot or eetve edgg ad or exerg tre. it

o ea lear o te aret ll develo to aoodate tee requreet, altoug oluto

do otetall ext. e reodet ere ot aare o o te gt deal t te oato o

rodut tat are regulated ad o-regulated t te e learg evroet.

so, lt 89% o reodet gt exet te regulato to age orlo te detaled oluto

are otetall olex ad dult to oeve tout oderal ore exeree o org t

te regulato. ve te ae o age, te a o tat te are ulel to e gve all te te

te at.


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CAS ARKe

ow will rlations affct workflows in X cash markts?

e at o te a aret le lear altoug te regulato aroud c rodut are

aued to ot lude fX a rodut dretl tere a olt tat t ll e aeted oe

o te roee ade adator te e regulato. ere ll e a dret at o oe

laer fX a aret ro te regulato aroud roretar tradg ad teall ortat

ette.

CreditriskisntmuchofanissueintheOTCFXmarketastheyareinothermarketse.g.thebulkofourtradesarespottradesandforspottradesyouhaveamaximumof2dayscreditrisk,whichisntdifficulttocopewith,alsomostFXproductssuchasforwardsoroptionsdontreallygopast1.5to2years.

op-tir ank (orth Amrica)

ca rodut are eretl deret to dervatve, or a tart te are ar le olex ad ore

requetl traded, a led to a ore lqud ad ore eletro aret (aroud 70% o tera

ot doe over e-ael, ol aout 30% o a are). soe o te area tat ould e dretl

aeted are e-tradg, e-rg ad learg.

wt e/evolved teolog led or dervatve aret r aageet ad exeuto,

artat o urretl trade ot/orard auall a d t a oortue te to eter te

e-aret or ore o ter a rodut, a te ugrade to autoated te or dervatve to ol

t sf requreet. ale to ot te u- ad ell-de: a u-de tart to ue e-te or

regulated rodut, te a ooe to exted t to a rodut to l ter orlo. te

ell-de, a ll ave to ul eletro re or dervatve to te el develoed sf gvg

te a etve to develo te alt to re a rodut te ae a.

e tree tage o tradg (re-trade, trade ad ot-trade) ll e aeted te a aret

ore eole dede to ue eletro rg ege, trade eletroall ad ee roe trade

eletroall. e urret eletro artat ll ot e a aeted a ter re geerato alread

eed to sgle Dealer portal, mult-Dealer portal ad exage, ad ll e relatvel le to

adat to oet to e rg veue. e gger queto eter or ot sDp ll urvve a o-

regulated rodut lator t deedet o te ot-regulato ae o te overall fX aret.

sDp lator are tegral to a a r aageet o fX a, o, lt regulato gt der

dret let to a tradg otat regulated rodut, te sDp tel ll evolve ad ata t e

role o a etral lae or re-trade, trade ad ot-trade aalte.

ca aret ave ature e-aret veue, allog te to oet ore eal to learg oue

ad tere a lt auto tat el regulated dervatve aret ll ave te ae. ere te olt tat oe artat ll dede to lear all ter fX trade, ludg ot, oe reao

eg te lage etee a ad dervatve. sa ad oto ot ota ot ad/or orard

ooet lt a ote ued to edge oto ad orard or exale, te roe or

exeutg a delta edge ll e dult to ororate due to te a ad dervatve ooet.

more geerall, a vetor a to lear ter dervatve ue troug a etral outerart (ccp)

te a at to lude a tat roe to treale ter ue roee.

e alteratve a rageted fX aret, ere ot a earate rodut; ere fX dervatve

eoe eter a tadaloe aret, or ororated to der dervatve ue. hoever, t lear

tat a rodut aot e oletel detagled ro ter dervatve outerart. ve toug

a rodut are exluded ro te regulato te a ol ever e artall exluded ro te eet

o te regulato ( deto te dervatve are derved ro te uderlg a aret). Dervatve

aret deed o rout a aret ad uteded oequee tat ae a le eet (e.g.der read, ger ratruture ot) ll dretl aet te dervatve aret.


10/20




56%ofEuropeanandUSbanksinterviewedarethinkingabouthowspot

tradesthatarelinkedtoderivativeswillbetreatedbutnoneareclearwhat

theeffectwillbe

addtoal eet are ro regulato retrtg roretar tradg at a tat ll urter lt te

lqudt te a aret ule te tred o roretar trader ovg to edge ud erel ove

t r outde o a (t evdet ro te aret a ell a lear geograal reeree or

outre le stzerlad ad sgaore). hoever, te regulato doe ave a too g to al agle,

eale te s regulator to dee a orgaato teall ortat ad a ooe to

regulate te te ae a a a a (or exale, a large edge ud). it ulear o t ll

la out gloall ad, a e a eleere, te urret tae to aue tat te ot oervatve

regulato ll al gloall ad te adat to te e realt, ut rate rego t ereved

lgter regulato are eettg ro a lo o eloee ad uee ro extg ttutoal

vetor, a ad edge ud.

no atter at, a fX eed to e odered e loog at tee regulato a te ot ouortg fX ll re ad te eoo o rovdg learg erve eed to e ad or eter

dretl ee, troug ue lo or loer rotalt or oe oato o te aove. wle

ot a udertad tere ll e a ot attaed, te ajort do ot o o g, or o t ll

e dtruted.


11/20



eCLg

What nw tchnoloy is ndd?

e fX aret a gro orgaall a a redoatl c aret ad te reult a ealt o

deret tradg etod, ro eletro exage, gle ad ult-dealer ortal, roer a ell a

l oe-aed tradg. dvert o exeuto etod ea tat a ooet t

te trade roeg le le ll lel e ated te regulato ad deto ll tereore

eed to e reveed ad otetall aeded or relaed. ve te eed o leetato o te

regulato, t dult to ee e tradg veue aearg - rater adatato to extg oe are

ore lel. sDp ll eed to ave etter lage to sf, le mDp ad roer ll eed to

eoe sf-olat (oo Reuter a alread aoued t teto to do o). poe ad oter

aual dervatve tradg ll eoe ued ol or olex dervatve a ue ro ore tadard

truture ll e rerouted to a sf.

radg veue ad aret ratruture rovder are alread loog to te otetal requreetarg ro regulator age ad oe are ag te rt te toard rovdg te eear

erve: exale are ot te cm ad ch.clearet, ot ave la or a fX learg

alt. ee age are eg leeted eve toug t reetl ulear eter a veue

quale a a sf. e at o laer o trade eletroall ll e le ta or aual trader

tere are alread te orlo rate ad tal ratruture lae, o da-to-da ua

eavour ould ot age ver u a te ot gat age ould e do to oetvt.

it ot lear o exeuto o degated dervatve traded over te oe ll traer to te e sf

evroet, ut learl te ll eed to e ult ad talled, eloee retraed et.

TheFXmarkethasset-upanumberofhighlyelectronicSTPs,matchingprocessesetc.includingCLS.Foranytradegoingthroughclearing,ithastobematchedfirst.So,thequestioniswhatwearegoingtousetomatchitbecausewedonthaveanyplatformsthatcanmatchtradesandsendthemthroughtoaclearerfortheFXmarket.Thereareotherplatformsouttherethatdothisforotherproducts.Wehavebeenlookingattheseserviceproviderstoseehowtheycanmeetourneeds.Theintroductionofsuchaplatformorthepossibilityofhavingmorethanoneintegratedintooursystemtofeedthroughtoaclearerisasignificantstep.

op-tir ank (erop)

ow will rlations affct workflow?

coeto to ccp ad trade reotore are aoter laer to a alread otated autoated

te. for exale, cn rovder tat ol t sf odto are lel to route our trade to

a ccp; oever, aual/oe-aed trader ll eed to trodue e orlo ad roee toaeve oetvt.

TheprocessofclearingisverynewtotheFXmarket;wewillhavetointroducenewprocesses,controlsandsystemstocopewiththat.Atthemoment,everybank/financialinstitution/corporateissetuptomakesureFXtradesgetfromthepointofexecutiontoconfirmation/settlementassoonaspossible.Theintroductionofclearingbringsachoice,andthechoicesare(i)Wheredoyouclear?(ii)Whodoyouclearwith?(iii)Howdoyouclearit?Thismeanswehavetointroduceprocesseswhereoursystems/peoplehavetomakedecisionsandinterrupttheflowofthetrade,andthatisasignificantchangeforanyoneintheFXmarket.

op-tir ank (erop)


12/20




What xistin tchnoloy can sd?

100%ofUSbanksand78%ofEuropeanbanksinterviewedbelievethattechnologycostsmayrise,andarereviewingtheirtechnologybudgets

accordingly

t oter aet o te regulato, te raeor a ee lad out, ut te detal, deto

ad ratal oluto to orlo are eluve. e area ere tere deate te uertat a to

at quale a a sf/f te s t ulel tat sDp ter urret or ll e ertted

to eoe sf, oever uroe tere le rerto aroud te deto. ere are gat

lato ad queto aroud t ue. wll sDp teolog e urter tegrated to e

aggregated lqudt ool? it ee tat t a lel e te ae. ba are tll eeg larato

a to eter t lqudt ould e sf olat. hoever, t lear tat te lateral ael a e

o t ll age, era ororatg a eed ro a cn to eet ult-re requreet.

ow will th nw tchnoloy fit with xistin workflows?

100%ofthebanksinterviewedthatarelookingattheimpactofthe

regulationsarefrustratedbythelackofdefinitiononkeypractical

workflowissues

ho ll olex oto e red? le ovou; or exale, o ll olex oto

e red to a let? e let all ter aleero to du te oto, a olex r

lato tat te eed adve o, doe te aleero te exeute te oto o te sf ad

te let or te trade, or doe te let te ut do te oe ad a te re ro te sf

teelve? w a ll e exet, a? ee are ortat oeratoal queto eg

aed a ad to , or te oet, te ajort eel tere o lear aer. ere are

gat to a overato gog o etee a ad regulator, ut tere a eelg tata at to tread areull ot eg too rertve to te regulator. reultg oe

rutrato at rogre o te e ratal ad oeratoal ue outled aove.

wat erta t: tere ll e ot exeuto ad ratruture ot attaed to te e order o

la. soe dretl due to te regulato, ad oter a a reult o te age eeded.

Structure of new processes

Trade

repositoryCLS/settlement

Exchange/SEF/OTF

Inter-dealerbroker/ECN

Manual/electronic

Manualclearing

CCP

Bank(clearing member)

Reporting

Bilateral Trading

3rd party

Trading

Manual Trading

Prime broker(clearing member)

Customer


13/20



What will it cost to implmnt?

89%ofthebankswespoketothatarereviewingtheregulationswereconcernedaboutthecostimplicationsofclearingandhowtheyweregoing

toaffectspreads.IntheUS,allbankswereconcernedaboutthis

ireaed ollateral requreet ll aet atal ot, le learg a erve tat eed to e

ad or. e arg volved learg fX ll lude to ooet; tal arg ad varato

arg. e tal arg te eurt deot value tat requred e a fX oto oeed

ad t rereet te aeed r value tat te ral detere ould al le a varato

arg te urealed rot or lo o te oe oto. ddtoal ot ll e urred ere r

aageet ad trade reortg te eed to e udated/leeted, ere eletro tradg

leeted ad ere e oetvt to trade reotore/learg oue eed to e et u.

ow will it implmntd?

were te alread ext, tee ll e adated to ol t regulato a develoet o

oletel e teologe te oug ad ratal to delo t te lted tg.

ba are uerta a to o t ll e ole to ol t te regulato te ort aout o

te avalale ere tere are o a oderato to tae to aout aroud rodut, urree

ad loato.

FXisconductedacrosssomanycurrencies;Icantimagineaclearinghousethatwilloffertosettleeverysinglecurrencyontheplanet.TheclearinghouseswillprobablyofferonlythemajorG10orG20currencies.Rional ank (Asia)

ItwillbeverychallengingtoimplementbecauseFXisaglobalproduct;theexchangewillhavetorun24/7.

id-tir ank (Asia)


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ReLAISIPS

ow will rlations affct rlationships?

ell a trutural age, te relato etee a, ter let ad oter aret artat

are lel to evolve, eeall a dret tradg ll e redued due to te eet o tradg va a

sf/f or regulated rodut. oe regoal uroea a ut t: i dot udertad tradg

arter o urretl trade t ea oter, te uture ll ot e alloed to do o aore jut

eaue ter trade o ave to e doe va a etral aret aer.

Oneoftheregionalbankswespoketoisseriouslyconsideringbecoming

theclearingmemberfortheirregionandlookingathowtoimplementthe

necessarychanges

soe a, artularl gloal ad roet regoal ttuto, ll lel eoe te learg

a or eto o te aret (rego, let-te, et.), allog te to attrat e let. preroerage relato are lel to eoe ore ortat ad develo to learg relato

to toe alread te ad ore attratve to toe o are ot re roer a tae o te

ollateral requreet o eal o aller a ad oer learg a art o te relato.

ould e o artular eet to aller, regoal a o gt otere d t dult to

etal te udg ad ratruture requred to artate troug ccp. e gloal a tat ere

urveed, ad are ajor re roer, are loog to o te a ororate learg to

toe, alread extg relato. ma a ll ave to evaluate te ot eet o eog

a learg eer ad oe regoal a a ee eet ro eg te learg eer or ter

outr. a eg eroul odered aroxatel 25% o te ajor regoal laer e

oe to uroe ad te s.

Theregulationswillaffectbackofficemorethanfrontofficewewillhavetoreorganisesomethingsinordertobeabletogiveup-to-dateservicetocustomersandcomplywiththelaw.

id-tir ank (erop)

Ontheposttradeside,ourriskmanagement,counterpartychecksetc.willchangebecausetheywontexistanymorewhenweuseaCCP.Thatisourconcernaswell,thetradeswedoe.g.viaabankwhichprovidesthatservicetousbecausegiventhesizeofourtradingvolume,wecanthookupdirectlytoLCHbecausewewontqualify.Thatconcentrationofrisktoafewbanksisofconcern,becausefromalegalpointofview,itisnotriskfree.

Rional ank (erop)

utl o, cs a ee te larget gle attet to addre ettleet r te aret,

addreg te outerart ettleet redt ad lqudt r aoated t ettleet r. i uture,

learg troug a etral outerart ade adator or oe rodut, te ccp arrageet

ould tgate redt r, cs doe ot, ad outerart redt r. i ccp are adator or

oe dervatve, ll regulated arte e llg or, deed ale, to a or to a oe erve

or tee rodut?

75%ofsurveyedbankswhichthinkCLSisakeypartoftheFXmarket

raisedconcernsaboutconnectivitybetweenCCPsandCLSifforwardsare

includedintheregulations


15/20



i t te ae, ettleet ould e aeted a uer evaluate cs ad ccp ot; oever, cs ave

dued te olt o rovdg oluto to ccp oetvt, ad a at cs to otue

to e art o ter orlo. oter ator to oder te olt tat aret r ould e

oetrated ccp e ccp lt te r to oter aret artat, ter o otetal alure

eoe a rtal ator to exae eaue te r ll e oetrated to a gle ratruture.

WethinkitisextremelyimportantthatanyclearingsolutionputinplaceutilisesCLSandcontinuestofollowthesettlementmodelthatwefollowedinthepast,becauseweagreewiththeregulatorsthatclearingisausefultool.op-tir ank (erop)


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gLbAL CRI

Dete te -20 otet to ote teratoall, te detal relatg to erta regulato

ll evtal var ro jurdto to jurdto. o add to te olato ad uertat

urroudg te regulato tere te gloal ature o te fX aret. fX atvte are tall

teratoal; t a a avg ette aro te gloe, te ll e aeted deret

regulato deret rego, deedg ot o ter loato ad tat o ter let. e gloal

ature o te fX aret a let a uerta at t ll ea or te, art o ter

ue t ll eet ad o to ollo te regulato: at ae to a trade etee outerarte

deret outre? were te learg doe? Do ot outerarte ave to e volved

te roe, or ol te art tat regulated (e.g. outerarte te s ad sgaore)? e

regulato rae a queto ad ore dea ta aer, ut oe a ull udertad te level

o raeor ad la o detal, te aer oe ro to agle. frtl to egage t te regulator

to e leetato detal ad, eodl, to aue te ot retrtve regulator evroet a

a org earo ad te adat a a regoal varae dtate.

IfyouhaveaUSbankexecutingaEUR/USDoptionwithaEuropeanbank,wheredoesitgetcleared?DoesitgetclearedintheUS,orEurope,orareweallowedtohaveachoice,ordowecleartheUSDlegintheUSandtheEUROleginEurope?

ThatexampleperfectlyhighlightswhywethinktheFXmarketisdifferentbecausetheargumentdoesntcarryanyweightinanotherassetclassi.e.inacreditderivative,youonlyhaveoneunderlyingassetandyouareguidedbyitslocationastowherethetradewillbecleared.Butyoucantapplysamelogictoanunderlyingassetwithtwojurisdictions.Weneedregulatoryguidanceonexactlywhatweshoulddoornotdointhosecircumstances.

op-tir ank (erop)

Who is affctd y th rlations?

Impact on th X markt: s: 40% egatve; 60% eutral

uroe: 20% otve; 50% egatve; 30% eutral

ter rego: 33% egatve; 67% eutral

wle uroe ad te s are leadg te a t regulato, ad a tere aet te eed to

la or te at o regulato, oter aret ave ot et addreed oe o tee ue. e to

ore ertet o ta eore; a eergg aret outre deregulate ter urree, ore ad

ore ll tart tradg fX dervatve oe alread ave. ae ca a a exale a ear ago

tere ould e lted at o tee regulato (ol or nDf) due to te retrto o dervatve

tradg ut o cnh oto are avalale to trade. wle t ae trade are requred to e

leared troug a autored art hog kog, oter e joer to te dervatve aret a e

le trt. not, o oure, orgettg te o-/s outre tat urretl trade fX dervatve, e.g.

sgaore ad utrala. it ee tat le oe o-s/uroea a aet tat te regulato

ll at te ad are rearg to at ter eavour to te regulato, oter do ot t t ll

at ter aret, at leat ot te edate uture a e ot e ll roal o etter,

ut e at ee atg tat aet u at te oet.


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vIg RWAR

fro t tud t lear tat te fX aret aout to exeree a revoluto ter o trade

exeuto ad r aageet. i addto, a eed to ou reagl o te detaled orlo

age tat ll reult ro te ortog regulator age. clearg oe ajor ujet o

a are oug, t s ad uroea ttuto eg te ot atvel volved dalogue

t regulator ad learg rovder. e eeda ro alot all te a e oe to luded

te geeral la o lart urroudg te detal o regulator age, ag t dult to ut deve

la lae or adequatel reare or te age to oe.

AlltheUSandEuropeanbankswespoketohavededicatedteams/

committeeslookingathowtheiroperationswillbeaffected

arge a t learg ad re roerage uee are leadg te a rearg or

regulator age. oe e ave oe to are ag ove to eure ter ratruture a

aoodate fX learg alogde ter alread etaled re roerage uee. llallo te to ae a eale trato requred. ltoug te oeu tat a ugrade o

a-oe te ee evtale, ot a are ot et read to tae ato. e are urretl

rearg or te requreet; ad all ere alo te roe o aeg te tuato. e e area

uder rut o to t a ccp to ter orlo, altoug ot rea ulear a to trade

ll eed to e/a e leared.

wle te urret regulator rooal regardg fX are ot et aled, t advale or a to

oder ter at, a toe tat e oe to uroe ad te s are dog. ke to t roe

tag te ot regulated earo (t o ot a are aroag te ta) ad etalg

te at o ter ue odel t ar eaer to redue te level o eaure eeded ta to or

te out uder reure. e at are de ad var ze ad loato o te a lt ter

reato are orreodgl deret: uroe ad te s, tere a ee o urge aout t

roe, erea a a ee to e adotg a at ad ee aroa.

roug te reear tat e ave gatered troug t tud, t lear tat tere a et o oo

area or atteto tat a ould e addreg toda.

Clint rlationships: regulato ll drve age a ad let relato: w a let ll alo e aeted te regulato?

ho ll tradg t deret let eget e aeted a a reult:

blateral tradg troug sDp ad mDp;

pre roerage odel eed to e reveed;

clearg eer (dret or trd art) eed to e odered.

Prodct chans: regulato ll age ere erta rodut are exeuted ad o te areroeed:

w rodut ll ave to e leared; stadarded oto ad a ad orard rodut;

would erta let eget at to lude a rodut learg orlo?

ranisational and oraphic considrations: regulato ll age ere erta rodut areexeuted ad o te are roeed:

Regulato a at jurdto trade gt et e exeuted, roeed, ettled;

ba a oder o de ad tradg tea are orgaed a te erge etee deret

fX truet are ated;

ba a oder o ter fX ue trutured ro a legal ett eretve.


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Risk manamnt considrations: te aret age tat ll tae lae a a reult o teeregulato ll age varou r aet o te fX ue:

ne redt r relato t ccp;

cage let redt r o trade due to learg;

potetal e oeratoal r ll e reated troug tee age; extg oeratoal r a

alo age ature;

ee age ave lato or r aageet ol ad roe.

prational workflow chans: extg roee ll ave to age ad e roee ll etrodued:

Role ad reolte o deret tea ad o e eroel are lel a a reult o te

age;

cage orlo are lel to e deret larger gloal a a oared t regoal

a;

clearg ad rade Reortg ll eed to e uorted rotl ad eetvel oe regulato

eoe eetve:

e earato, artularl or aller a t oe fX de, o fX a ad dervatve;

ho learg ad trade reortg ll t to urret truture.

chnoloy implications: all aet o te fX trade le le, re-trade, trade ad ot-trade ll eated; ad te te lae to uort t orlo ll eed to e reveed ad aeed

or te or uroe:

sgle dealer ortal ll eed to e reveed te lgt o te regulato;

itegrato t ult-dealer ortal ll eed to e reveed;

credt r te ll eed to relet age redt r due to ccp;

rade roeg te ll eed to e eaed ad ogured or e orlo or learg

ad trade reortg.

it lear tat tee regulato ll ave de reag at aro ultle dvo t a. it

eratve, a ave ot et etaled ro-dvoal org grou, tat te do o rotl

ad eg to reve ad oder te age, eve toug u o te detal rea et to e

deed.

i te regulato oe to ore at te ae ae tat te ave ee oeved (t ol 18 ot

e tee regulato ere rt alluded to te 20 seteer 2009), a tat are aead o

te urve ad ave egu to ut lae la ad ato to addre ad erae te oortute

reeted te age ll e et laed to eet ro te e fX aret da.


19/20



gLSSAR eRS uSe

rm ll nam scription

ccp cetral couterart ett tat teroe tel etee traatg

outerarte, t lear traato atg a a

uer to ever eller ad a eller to ever uer.

ccy curre legal edu o exage tat geerall

aeted, uuall te or o oe.

cs cotuou ed ea tat artat te oreg exage

settleet aret ue to ettle traato aogt teelve.

cm cago meratle aal rodut (. fX uture ad oto) ad

xage oodt dervatve exage.

cn letro couato order-drve eletro aret tat ate uer

netor ad eller at oe etral lqudt ool or te

exeuto o trade.

iRs iteret Rate sa agreeet to exage erod aet related

to teret rate o a gle urre.

ch. odo clearg houe aal learg oue or equte, dervatve ad

clearet oter aal truet.

f rgaed radg falt tradg veue or dervatve lar to sf a

rooed mfiD ii.

sf sa xeuto falt tradg te or lator ultle

artat ave te alt to exeute or trade a aetg d ad oer ade oter

artat.

sp stragt roug proeg et-u tat eale aal orgaato to

reeve ad roe aal traato ro tart to

utlzg a eletro te tout te eed

or aual terveto.


20/20

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Regulatory Effects on FX Cash Markets

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