Then we have proposed new collateral rules for both uncleared derivatives and futures. The former were supposed to be finalized and implemented by the end of 2012, but that’s been pushed back to the end of this year. Even without the final rules, LCH.Clearnet nearly tripled its net profit last year, in part on new volume from the over-the-counter world.
On the futures front, the Commodity Futures Trading Commission (CFTC) wants to ratchet up collateral requirements for futures commission merchants (FCMs) — a proposal that the Futures Industry Association (FIA) says will kill the current business model.
The CFTC also wants to impose tougher auditing and disclosure standards on FCMs, with designated self-regulatory organizations taking responsibility for making sure customer funds really are segregated. Few have argued against that one, but the FIA says the CFTC has gone too far in requiring that FCMs mark their collateral to market throughout the day, as opposed to at the close of business like they do now.
The return of exchange wars
And finally, after years of shaking out, we have two new futures exchanges emerging overseas: CME Europe and NASDAQ OMX’s new NLX platform. Both are based in London, and both will be targeting customers from Asia and Latin America as well as Europe. Combine this with the IntercontinentalExchange’s (ICE) proposed takeover of NYSE and its derivatives subsidiary, NYSE.Liffe, and you have the makings of a fascinating new battle playing out on several continents.
Brazilian regulators have approved ICE’s plans to create an electronic bond-trading platform in Brazil, and ICE CEO Jeff Sprecher has proven time and again that he can roll with the changes better than his competitors. It will be fascinating to see what he brings to the NYSE.Liffe brand, assuming that takeover goes through.
New blood at the NFA
On the self-regulatory front, three outspoken critics of the NFA have been elected to the board of directors. James Koutoulas, John Roe and Jeff Malec have pulled no punches in critiquing the NFA auditors who failed to uncover Wasendorf’s shenanigans, among other things. Katoulas and Roe run the Commodity Customer Coalition (CCC), a non-profit that’s been shining the bright light of transparency on regulators, exchanges, and bankruptcy attorneys since MF Global’s Halloween implosion in 2011. Beyond the CCC, Koutoulas is chief executive of Typhon Capital Management; Roe is president of Roe Capital Management and Malec is chief executive of Attain Capital Management. First on their agenda: Taking stock of the NFA’s auditing process.
“The NFA has to do a little soul-searching here — especially with regard to the audit culture,” says Roe. “We’re wondering if they haven’t fallen into a tick-box mentality that focuses attention on minutiae like whether disclaimers are in the right place instead of on things that really are a threat to the market.”
The next board meeting won’t take place until May, and Roe says they’ll work within the NFA’s committee structure to get a handle on what works and what needs to be fixed.