Most major Asia trading centers plan to have central clearing entities in place by 2012; US bankers want more time on rules.
While there has been talk that banks and others would move their derivative trading operations to less restrictive parts of the world, one area that won’t be on the list is Asia. According to a Reuters report, just about all of the major trading centers in the region are implementing, or planning to, OTC derivative-clearing initiatives in an effort to make the market more transparent.
Dodd-Frank financial reform rules aim to move derivative trading to public trading platforms such as exchanges or swap execution facilities (SEFs) — although SEFs may have a hard time getting approved (see related story here) where there is greater pricing transparency. India, Hong Kong, Singapore, South Korea, China and Japan are looking to follow suit and are creating central clearing entities for derivatives trading.
What has not been established is what type of swaps would be required for central clearing. In Japan, it’s only been ruled that those swaps that have a “significant” value would have to go through central clearing, so it is not yet clear if corporations will have to use them. Other financial centers in the area look like they will have more definitive rules in place by 2012.
Throughout the run-up to Dodd-Frank and after, many commentators have speculated that OTC derivative trading would move to less restrictive areas of the world – like Switzerland.
More time please
Meanwhile in the US, the American Bankers Association has written a letter to the FDIC asking for more time to comment on changes to “large bank risk-based assessment methodology.” Wayne Abernathy, EVP of financial institutions policy at the ABA, wrote in a letter to FDIC Chairman Sheila Bair that the current comment period, ending Jan. 3, 2011, “does not provide adequate time to understand fully the implications of the changes and to provide thoughtful comments.” The FDIC’s plan would link the fees that banks pay to the FDIC to insure customer deposits to total bank assets, which replaces the current system of basing the fee on deposits.
Mr. Abernathy went on to say that the proposed methodology was complicated and that banks have been unable to duplicate the results using the FDIC calculator.