Jeremy Wright

Published 1/5/2012

While China has set no timetable for the liberalization of its capital markets, a series of initiatives in recent years suggests the pace of reform could gather speed as we move into 2012.

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Jeremy Wright is global head of futures and options at Royal Bank of Scotland. 

Galen Burghardt and Brian Walls

Published 1/5/2012

Last November we noticed something interesting about the audience at our research forums in New York and San Francisco. We have been organizing these forums for nearly 10 years as a way to discuss investment ideas with fund managers and other investment professionals. All of a sudden a host of pension fund representatives turned up with questions about managed futures. In fact, it appears that for some of these funds, the question is not if they should allocate to managed futures, it’s how much. And that prompted us to take a closer look at what might be driving this upsurge of interest.

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Galen Burghardt and Brian Walls work in the prime brokerage unit of Newedge and co-wrote Managed Futures for Institutional Investors (Bloomberg, 2011). They thank Mark Carhart (Kepos Capital), Antti Ilmanen (AQR Capital Management) and Theodore Economou and Gregoire Haenni (CERN pension fund) for many lively conversations and for their guidance in this research. They also thank their colleagues in research at Newedge, Ryan Duncan and Lianyan Liu . Any questions about analysis or sources of data and information can be addressed directly to the authors at either galen.burghardt@newedge.com or brian.walls@newedge.com .  

Stan Ivanov and Lee Underwood

Published 1/5/2012

Credit default swaps play a vital role in the global economy as hedging tools for credit providers and others with exposure to a corporate or sovereign entity and as a market-based indicator of an entity’s financial health. Following the financial crisis of 2008, in which uncertainty about credit risk and counterparty exposures in the over-the-counter market were a major factor, IntercontinentalExchange introduced CDS clearing in March 2009 with the launch of ICE Trust, now known as ICE Clear Credit. Today, ICE Clear Credit and ICE Clear Europe, which began clearing CDS in July 2009, offer clearing on more than 300 index and single name underlying references. Through Sept. 9, ICE Clear Credit and ICE Clear Europe have cleared $22.4 trillion in gross notional value resulting in open interest of $1.56 trillion.

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Stan Ivanov is chief risk officer, ICE Clear Credit. Lee Underwood is director, communications, IntercontinentalExchange.

Daniel Maguire

Published 1/5/2012

LCH.Clearnet has been clearing over-the-counter derivatives for 12 years. We successfully weathered the Lehman default in 2008 and today our SwapClear service clears approximately 50% of the outstanding notional value of the global market in interest rate swaps. The total outstanding amount of interest rate swaps was $307 trillion in notional value as of Aug. 31, and 58 clearing firms were participating as members of SwapClear.

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Daniel Maguire is head of OTC derivatives, risk and operations at LCH.Clearnet.

James Overdahl

Published 1/5/2012

One of the more difficult challenges faced by exchanges is balancing the needs and interests of different segments of the market. One example is the introduction of implied matching functionality, a mechanism that allows exchanges to replicate certain market making functions within their own matching engines. Some market participants have welcomed this innovation while others have questioned its value in liquid markets. In this article, James Overdahl, an economist with NERA Consulting, examines the impact of implied matching functionality on two specific futures contracts. Overdahl, whose research was sponsored by the FIA Principal Traders Group, analyzes the impact using five measures of market quality and finds that in these two instances, market quality improved when the exchanges turned off their implied matching functionalities.

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James Overdahl is a vice president at NERA Economic Consulting. Before joining NERA he served as the chief economist at the Commodity Futures Trading Commission and the Securities and Exchange Commission.

Annette Nazareth and Gabriel D. Rosenberg

Published 1/5/2012

The Dodd-Frank Act, signed into law on July 21, 2010, outlined an ambitious plan for the implementation of its comprehensive reform of the over-the-counter derivatives market. The derivatives provisions were due to go into effect—and the vast majority of the implementing regulations were due to be finalized—by 360 days after the law was signed on July 16, 2011. Yet, over the past year, the Commodity Futures Trading Commission and the Securities and Exchange Commission have each delayed the effectiveness of Dodd-Frank's derivatives provisions and fewer than 20% of the rules with a July 2011 deadline have been finalized. The Dodd-Frank schedule has proven far too ambitious, leaving market participants to wonder when there will be certainty concerning the regulatory requirements and when they will have to comply. On Sept. 9, the regulators took the first concrete step towards offering needed certainty through an implementation timeline, with the CFTC proposing a general phase-in schedule for clearing, exchange trading, documentation and margin requirements.

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Annette Nazareth is a partner and Gabriel Rosenberg is an associate at Davis Polk & Wardwell. Both work in the firm’s financial institutions group.

Bennett Voyles

Published 1/5/2012

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Bennett Voyles is an independent business journalist based in New Jersey.