• Pivotfarm
    05/30/2015 - 08:32
    Warren Buffet isn’t one of the richest men in the world with the flair for making a fast buck or two for nothing.

OTC Derivatives

Tyler Durden's picture

Official Statement From Spanish Regulator On 15 Day Financial Short Selling Ban, Which Also Includes OTC Derivatives





Just as in the case of France, here is the official statement from the Comision Nactional de Marcado de Valores, disclosing the Spanish 15 day prohibition on shorting stock. The banks impacted are Banca Cívica, S.A., Banco Bilbao Vizcaya Argentaria, S.A., Banco de Sabadell, S.A., Banco de Valencia, S.A., Banco Español de Crédito, S.A., Banco Pastor, S.A. Banco Popular Español, S.A., Banco Santander, S.A., Bankia, S.A., Bankinter, S.A., Caixabank, S.A., Caja de Ahorros del Mediterráneo, Grupo Catalana de Occidente S.A., Mapfre, S.A., Bolsas y Mercados Españoles, S.A., Renta 4 Servicios de Inversion, S.A. Unlike Frace, Spain has also explicitly banned not only short cash transactions, but also any position in OTC derivatives "which involves creating a net short position, or increasing an existing one." Next and last: the Italian statement, as frankly nobody cares about Waffles.

 
Tyler Durden's picture

The Real "Margin" Threat: $600 Trillion In OTC Derivatives, A Multi-Trillion Variation Margin Call, And A Collateral Scramble That Could Send US Treasurys To All Time Records...





While the dominant topic of conversation when discussing margin hikes (or reductions) usually reverts to silver, ES (stocks) and TEN (bonds), what everyone so far is ignoring is the far more critical topic of real margin risk, in the form of roughly $600 trillion in OTC derivatives. The issue is that while the silver market (for example) is tiny by comparison, it is easy to be pushed around, and thus exchanges can easily represent the illusion that they are in control of counterparty risk (after all, that was the whole point of the recent CME essay on why they hiked silver margins 5 times in a row). Nothing could be further from the truth: where exchanges are truly at risk is when it comes to mitigating the threat of counterparty default for participants in a market that is millions of times bigger than the silver market: the interest rate and credit default swap markets. As part of Dodd-Frank, by the end of 2012, all standardised over-the-counter derivatives will have to be cleared through central counterparties. Yet currently, central clearing covers about half of $400 trillion in
interest rate swaps, 20-30 percent of the $2.5 trillion
in commodities derivatives, and about 10 percent of $30 trillion in
credit default swaps. In other words, over the next year and a half exchanges need to onboard over $200 trillion notional in various products, and in doing so, counterparites, better known as the G14 (or Group of 14 dealers that dominate derivatives trading including
Bank of America-Merrill Lynch,
Barclays Capital, BNP Paribas, Citi, Credit Suisse, Deutsche
Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, RBS,
Societe Generale, UBS and Wells Fargo Bank) will soon need to post billions in initial margin, and as a brand new BIS report indicates, will likely need significant extra cash to be in compliance with regulatory requirements. Not only that, but once trading on an exchange, the G14 "could face a cash shortfall in very volatile markets when daily margins are increased, triggering demands for several billions of dollars to be paid within a day." Per the BIS "These margin calls could represent as much as 13 percent of a G14 dealer's current holdings of cash and cash equivalents in the case of interest rate swaps." Below we summarize the key findings of a just released discussion by the BIS on the "Expansion of central clearing" and also present a parallel report just released by BNY ConvergEx' Nicholas Colas who independetly has been having "bad dreams" about the possibility of what the transfer to an exchange would mean in terms of collateral posting (read bank cash payouts) and overall market stability, and why a multi-trillion margin call could result in the biggest buying spree in US Treasurys... Ever. 

 
rc whalen's picture

OTC Derivatives and the "Buffett Amendment" (Update 1)





Now we know why BRK, CAT and the other big corporates came oozing out of the woodwork last year to defend the OTC derivatives market. JPMorgan (JPM), Goldman Sachs (GS) and the other OTC dealers let Warren Buffett's Berkshire Hathaway (BRK) and the other "AAA" corporates play at the roulette table w/o any chips. Isn't this the man who called OTC derivatives weapons of mass destruction?

 
rc whalen's picture

Financial Economics, Deregulation and OTC Derivatives: Interview with Yves Smith of Naked Capitalism





We ran an interview with our friend Yves Smith of Naked Capitalism today. She has done an excellent job of describing how the intellectual ghetto that was once financial economics has helped to destroy the world of investing and involuntarily turn us all into day traders. The full text follows below. -- Chris

 
rc whalen's picture

OTC Derivatives: Is the DTCC Too Big To Fail?





At our firm we frequently receive calls from clients and readers asking about the likelihood of the passage by the Congress in Washington of reform legislation regarding over-the-counter (OTC) derivatives, financial regulation and/or mortgage securitization. Our answer is small to none given the political trends and the state of the lobbies in Washington, most specifically the large bank lobby that protects the Sell Side monopoly in OTC derivatives and securities. The fact that Senator Richard Shelby (R-AL) is still apparently not comfortable with the entirely watered down House proposal to reform OTC derivatives, for example, tells you all you need to know. Stick a fork in it.

 
Chopshop's picture

TABB Group Pinpoints OTC Derivatives Regulatory Impact Of The Wall Street Reform And Consumer Protection Act Of 2009 (H.R. 4173)





- New Study Analyzes The Bill’s 200-Plus Pages Covering Derivatives, Outlines Potential Industry Impact And Gives A Timeline Leading To US Senate Passage
- Says New Competition Lies Ahead For Dominant Major Dealers From New Group Of Smaller, Nimble Tech-Savvy Dealers

 
Tyler Durden's picture

Whalen And Griffin On OTC Derivatives





From yesterday's hearing before the U.S. Senate on Over The Counter Derivatives. The full archived webcast can be found here - some perspectives from Citadel's Griffin and Robert Pickel, CEO of ISDA, but most notably a very exhaustive report from Chris Whalen of IRR. While I am not as much a proponent of regulation of CDS as Whalen is, he provides an impressive narrative of recent events which, if one were so inclined, could provide CDS-haters enough ammo to make a sufficiently strong case.

 
Tyler Durden's picture

Whalen And Griffin On OTC Derivatives





From yesterday's hearing before the U.S. Senate on Over The Counter Derivatives.

 
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