ESSENTIAL
FX REGULATORY CHANGES
..andtheSolutionstoAddressThem
Agenda
Dodd Frank
Documentation (ISDA/Credit Docs)
Trade Acknowledgements
Trade Confirmations
Trade Repository Reporting
C...
Overview of Regulatory Changes
Post 2008 Financial Crisis the “Group of Twenty” (G20) called for reform to improve practis...
Implications for FX Market Participants
Some complicated jurisdictional overlap
US Regulatory Requirements WILL affect you...
Useful Definitions
NON EXEMPT FX SWAPS
Foreign Currency Options (including collared options)
Non- Deliverable FX Forward C...
Documentation
Documentation must be more standard and participants are
required to homogenise terms
Documentation is requi...
Trade Acknowledgement
Trade Acknowledgement
New work flow (in trade cycle)
Market Participants must now acknowledge trades...
Trade Confirmations / Trade Repository Reporting
Trade Confirmations (Customers and Counterparties)
Electronic Confirmatio...
Central Counterparty Clearing / Trade Compression
Central Counterparty Clearing
ALL FX options and NDF trades must be clea...
Position Reval., Margin and Collateral Management
Products requiring margining and collateral
Cleared Swaps
FX Options and...
Record Keeping
Full, complete, and systematic records
Maintained from trade execution through to 5 years
after termination...
Eligibility and Disclosure
(Business Conduct Stds)
Counterparty Verification of Eligibility
(eligible contract participant...
Agenda
Dodd Frank
Documentation (ISDA/Credit Docs)
Trade Acknowledgements
Trade Confirmations
Trade Repository Reporting
C...
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EMIR Dodd-Frank for FX Participants

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ESSENTIAL FX REGULATORY CHANGES
...and the Solutions to Address Them

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EMIR Dodd-Frank for FX Participants

  1. 1. ESSENTIAL FX REGULATORY CHANGES ..andtheSolutionstoAddressThem
  2. 2. Agenda Dodd Frank Documentation (ISDA/Credit Docs) Trade Acknowledgements Trade Confirmations Trade Repository Reporting Central Counterparty Clearing Position Compression Position Reval., Margin and Collateral Management Record Keeping Eligibility and Disclosure (Business Conduct Stds) Overview of the Regulatory Changes Implications for FX Market Participants EMIR Documentation (ISDA/Credit Docs) Trade Acknowledgements Trade Confirmations Trade Repository Reporting Central Counterparty Clearing Position Compression Position Reval., Margin and Collateral Management Record Keeping Software Solutions to Address the Regulatory Requirements http://www.baxter-it.com/regulation
  3. 3. Overview of Regulatory Changes Post 2008 Financial Crisis the “Group of Twenty” (G20) called for reform to improve practises in OTC derivatives markets. Identified need to strengthen international financial regulatory system. New regulations aim to: Bring safer Financial markets and address risks of OTC trading across jurisdictions Enhance transparency, promote financial stability and support detection and prevention of market abuse Regulators have aimed for consistency between jurisdictions <== ! ! ! Dodd Frank July 2010 EMIR (European Market Infrastructure Regulation) August 2012 Common goals: Electronic Trading platforms to ensure transparency Reporting to Trade Repositories Central Clearing Risk Mitigation even for non cleared OTC Derivatives <== ! ! ! Margining and Collateral <== ! ! ! Respond to Regulator query Conduct of Business
  4. 4. Implications for FX Market Participants Some complicated jurisdictional overlap US Regulatory Requirements WILL affect you: far reaching arm of US regulation. Complicated Product differentiation Tier 1 banks must be able to comply to ALL of the regulatory requirements due to their product range Significant technology implications New work flows Dramatic increase in data fields required Trade Client Counterparty Complicated integrations required Most deadlines to be compliant are already passed (some extensions)
  5. 5. Useful Definitions NON EXEMPT FX SWAPS Foreign Currency Options (including collared options) Non- Deliverable FX Forward Contracts ('NDFs) involving foreign exchange. “EXEMPT” SWAPS FX Swaps FX Forwards NDF Non Deliverable Forwards FC Financial Counterparty (Entering into derivative transactions under EMIR identifies you as a counterparty.) NFC Non Financial Counterparty DCO Derivative Clearing Organisation CCP Central Counterparty ESMA European Securities and Markets Authority CFTC Commodity Futures Trading Commission UPI Unique Party Identifier USI Unique Swap Identifier UTI Unique Trade Identifier LEI Legal Entity Identifier
  6. 6. Documentation Documentation must be more standard and participants are required to homogenise terms Documentation is required to be kept electronically Documentation must be made available to Regulators on demand The CFTC rules include detailed requirements for client relationship documentation, including agreement on valuation methods. US EU
  7. 7. Trade Acknowledgement Trade Acknowledgement New work flow (in trade cycle) Market Participants must now acknowledge trades after trades have been executed (in dealing channel) Records of acknowledgements must be kept and made available to Regulators on demand (timestamp, who etc.) US EU
  8. 8. Trade Confirmations / Trade Repository Reporting Trade Confirmations (Customers and Counterparties) Electronic Confirmations (Not in trade cycle, by separate division) Unique Trade Identifiers (must be created, passed & stored) Unique Swap Identifier (must be created, passed & stored) Unique Product Identifier (must be stored) Legal Entity Identifier (must be stored) Trade Repository Reporting All trades MUST be posted to a Trade Repository Real time, trade by trade (Dodd Frank) At the latest T+1 (EMIR) <== real time better Information to be reported Parties to the contract, type of contract, maturity, notional value, price, settlement date All data must be made available to Regulators on demand US EU
  9. 9. Central Counterparty Clearing / Trade Compression Central Counterparty Clearing ALL FX options and NDF trades must be cleared by a Derivatives Clearing Organisation ('DCO' e.g. CME) or a Central Clearing Counterparty ('CPP') Either become Clearing Member or use a Clearing Broker The DCO/CCP will determine margin calculation methodology for any positions cleared (Bank needs to calculate for itself too) Trade Compression (Customers and Counterparties) Trades must be compressed for more efficient clearing and margining In relation to portfolios among swap dealers/participants, both must establish, maintain and follow written policies and procedures for: 1. Terminating each fully offsetting swap in a timely fashion 2. Engage in bilateral portfolio compression when appropriate 3. Engage in multilateral portfolio compression exercises, where appropriate US EU
  10. 10. Position Reval., Margin and Collateral Management Products requiring margining and collateral Cleared Swaps FX Options and NDFs Uncleared Swaps FX exchange traded swaps and forwards Margin Process Revaluation is required to happen every day Margin requirements established and held by the DCO/CCP for cleared swaps, self established for “exempt” ones. Margin must be collected from Corporate Users and exchanged with Financial Counterpaties Margin transfer can be activated above a threshold Participants are required to reconcile their own margin figures All data must be made available to Regulators on demand US EU
  11. 11. Record Keeping Full, complete, and systematic records Maintained from trade execution through to 5 years after termination Confirmations Acknowledgements Agreements Changes in terms Master and Credit Support Agreements Electronically maintained and augmented New requirements must be added gradually US EU
  12. 12. Eligibility and Disclosure (Business Conduct Stds) Counterparty Verification of Eligibility (eligible contract participant (“ECP”), Special Entity.) Disclosure of Material Information (Swap material risks and characteristics, conflicts of interest) Scenario Analysis provide Counterparty with term sheet US EU
  13. 13. Agenda Dodd Frank Documentation (ISDA/Credit Docs) Trade Acknowledgements Trade Confirmations Trade Repository Reporting Central Counterparty Clearing Position Compression Position Reval., Margin and Collateral Management Record Keeping Eligibility and Disclosure (Business Conduct Stds) Overview of the Regulatory Changes Implications for FX Market Participants EMIR Documentation (ISDA/Credit Docs) Trade Acknowledgements Trade Confirmations Trade Repository Reporting Central Counterparty Clearing Position Compression Position Reval., Margin and Collateral Management Record Keeping Software Solutions to Address the Regulatory Requirements http://www.baxter-it.com/regulation

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