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PvalAnal85
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Posts: 37
Joined: May 26th, 2009, 6:23 pm

Why are cleared swaps more strictly regulated than swap futures?

December 7th, 2012, 2:19 pm

Hi,With the new CME Deliverable/ Eris Standard swap futures only having a 2-day closeout period for initial margin calculations (vs. a 5-day closeout period for cleared swaps on the CME), I'm wondering: Why is this the case?If swaps are cleared centrally, they should pose no more of a systemic risk to the financial system than futures. So why are the regulations for cleared swaps so punitive in comparison?It's not just the 2-day horizon vs 5-day horizon for initial margin calculations- it's having to report to Swap Data Repositories (SDRs) and registering as Major Swap Participants (MSPs) and Swap Delaers (SDs) as well. The explosion of acronyms alone is a sign that regulations are a lot tougher on swaps than they are on futures(!)Can anyone please share their thoughts on this?Thanks
 
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alpher
Posts: 90
Joined: September 1st, 2012, 4:20 pm

Why are cleared swaps more strictly regulated than swap futures?

December 14th, 2012, 6:11 pm

most likely because they aren't regulated by the cftc....- cme/ice or whoever on the other hand are only interested in making money.
 
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bearish
Posts: 5686
Joined: February 3rd, 2011, 2:19 pm

Why are cleared swaps more strictly regulated than swap futures?

December 14th, 2012, 9:30 pm

This is nothing but an attempt at regulatory arb by the CME. And both the futures and the underlying swaps are regulated by the CFTC.
 
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PvalAnal85
Topic Author
Posts: 37
Joined: May 26th, 2009, 6:23 pm

Why are cleared swaps more strictly regulated than swap futures?

December 18th, 2012, 9:02 pm

Thanks for your thoughts. A reason I heard on the street for 2-day vs 5-day holding period is "it will take longer to auction off IR swap instruments post-default due to their non-standard nature"- but this could easily be solved by creating standard contract features (like they did for CDS), so i'm not buying it ...
 
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bearish
Posts: 5686
Joined: February 3rd, 2011, 2:19 pm

Why are cleared swaps more strictly regulated than swap futures?

December 19th, 2012, 1:41 am

Indeed. Dodd-Frank did not change the rules for futures clearing (as far as I know) but imposed all sorts of requirements for the clearing of OTC derivatives, as well as extremely punitive initial margin requirements for non-cleared OTC derivatives. Perhaps by coincidence, the new rules are very favorable to Chicago based entities at the expense of NYC based ones. And I am saying that as a representative of a buy-side organization that does not have an axe in that particular fight.
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