EFAMA responds to FSB’s liquidity preparedness consultation

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June 21, 2024

Tanguy van de Werve, director general, EFAMA

The European Fund and Asset Management Association (EFAMA) has voiced its agreement with the FSB following the latter’s consultation report on liquidity preparedness for margin and collateral calls, published in April.

Market participants should be integrating margin and collateral calls into their risk management, governance and operational processes, the association stated, adding that European investment funds have been compliant with a “comprehensive set” of margin and collateral management rules for many years.

The FSB raised recent episodes of market stress, including March 2020 and the Archegos collapse in March 2021, as evidence that margin and collateral calls are crucial to financial stability. As such, it proposed eight cross-sectoral policy recommendations to improve liquidity preparedness of non-bank participants for margin and collateral calls in centrally and non-centrally cleared derivatives and securities markets.

In its response, EFAMA stated that it “believes that the proposed recommendations will strengthen the ability of supervisors to monitor and manage financial stability risks associated with insufficient liquidity preparedness. These recommendations will notably incentivise every market participant materially using derivatives to conduct stress testing exercises and make the results available to their relevant supervisory authority.”

However, it went on to express doubt that the pro-cyclical behaviour of investment funds caused by margin calls will be reduced by these recommendations. European regulation already requires funds to consider such calls in their liquidity management processes, it explained, advising a series of adjustments to the proposals.

In order to preserve existing margin management practices and ensure a level playing field across sectors and jurisdictions, the association advocates for the recommendations to focus first on non-regulated market participants, and for banking institutions such as prime brokers, who operate in a similar way to market participants, to come under their scope.

The association leans away from a one-size-fits-all approach in its suggestions, calling for a lesser extent of compliance for market participants with limited exposure to derivatives and consideration to the fact that certain aspects of the recommendations will not apply to all sectors of the industry.

It also states that “an acknowledgment that these recommendations should apply in principle. No market participant can guarantee it will always be in a position to meet margin calls in a predetermined way, if at all. Market stress can be unpredictable and, despite optimising one entity’s own risk management, it is impossible to know in advance how other market participants will exactly respond to given stressed conditions.”

EFAMA asks for an “explicit recognition” that liquidity buffers should not be the default solution for financial volatility among investment funds, and maintains that the FSB should actively engage with other standards setter bodies, particularly IOSCO, to see that structural reforms are made.

©Markets Media Europe 2024

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DTCC appoints four to board of directors

By

Lucy Carter

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June 21, 2024

Kevin Kessinger, non-executive chairman of the board, DTCC

DTCC has appointed Brian Gallagher, Christopher Gelvin, Jon Herrick and Igor Modlin to its board of directors.

Gallagher serves as global head of markets operations at JP Morgan Chase, and has been with the firm for the past 23 years.

Currently group operations and technology office chief operating officer at UBS, Gelvin has more than 25 years of industry experience. The majority of his career has been spent at UBS, which he joined in 2006. He has held a variety of senior roles at the firm, including chief transformation officer and director of the Americas wealth management platform.

Herrick is chief product officer at the NYSE, with responsibility for product development and innovation across the exchange business. With close to 25 years of experience, he has held a number of senior roles during his career including head of markets and head of equities at NYSE.

As global head of prime services product development at Goldman Sachs, Modlin covers the front-to-back efforts of the prime services division. He has close to 30 years of industry experience, and became a partner at Goldman Sachs in 2018.

The board, which helps to set DTCC’s strategic direction and works with the firm on an advisory level, is comprised of 22 members: 13 participant directors representing clearing agency members, five non-participant directors, two directors appointed by DTCC’s preferred shareholders (NYSE and FINRA), the DTCC non-executive chairman and the president and CEO.

Commenting on the appointments, Kevin Kessinger, non-executive chairman of the board, said: “We are pleased to welcome Brian, Christopher, Jon and Igor to the board of directors. They bring extensive leadership skills, deep subject matter expertise and diverse experiences in financial services to the Board at a time when the industry is looking to DTCC for enhanced support.

“As our company takes on a larger role leading change through innovation, we look forward to their guidance, insights and contributions.”

©Markets Media Europe 2024

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IDX: Clearing up clearing in Europe

By

Lucy Carter

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June 20, 2024

Hester Serafini, president, ICE Clear Europe

With volatility a constant market presence in recent years, and expected to be for the foreseeable future, regulators need to ensure that firms can access liquidity in the face of stress, panellists at this year’s International Derivative Expo conference agreed.

Transparency is key, affirmed Hester Serafini, president of ICE Clear Europe, allowing markets to manage liquidity to the best of their ability and work through crises. A number of solutions have emerged from different forums, she noted, and both regulators and market participants need to determine which will make the most measurable difference. To do so, the industry needs to take a step back and consider what has driven recent big liquidity demands and challenges, she suggested.

Considering EMIR 3.0, Matthias Graulich, member of the executive board of Eurex Clearing, stated that Eurex is “very supportive” of the regulation’s margin transparency element. He advised that requirements should be proportionate and focus on challenges around variation rather than initial margin, advocating for global convergence and a level playing field in this space.

The level one text requires tweaks, Graulich continued, and with ratification and implementation processes yet to come it will be another four to five months before the regulation is ready to go. What has been published so far, however, shows a clear direction of travel, and further clarity is expected to arrive in due course.

“I encourage everyone to start preparing now; don’t wait until two weeks before the deadline, because if everyone rushes to the door, we have a problem,” he added.

On EMIR 3.0’s approach to active accounts, “we think they’ve gone about this in an unfortunate way”, said Serafini. “This policy is just forcing things; it hasn’t had a great reception.” She went on to opine that the policy will not achieve its goals here, instead disadvantaging some EU firms who will have to trade in less liquid markets while the rest of the world carries on as usual.

During an audience poll, the biggest risk to CCPs was determined to be cyber attacks. It’s important that the industry responds to each development in the cyber world, said Anthony Attia, global head of derivatives and post-trade at Euronext, adding that this is why core critical systems are not being put into the cloud; it adds risk.

“A cyber attack is not unique in the CCP space,” stated Lee Betsill, managing director and chief risk officer at CME Group, but could impact the entirety of the global financial system – and beyond. However, while cyber threats are certainly a danger, he went on to confirm that there has been significant development in this space over recent years, with resources allocated to cybersecurity.

©Markets Media Europe 2024

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IDX: Bumper election year could be less disruptive than feared

By

Lucy Carter

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June 20, 2024

Political instability feels more of a threat than ever, but what impact is it really having on markets? Exchanges weighed in at this year’s International Derivative Expo conference, and considered other challenges and opportunities for European derivatives markets.

With 2024 a historic year for elections – citizens of 55 countries will be headed to the polls – the impact of results on policy priorities was raised. Despite recent results across Europe, “there will be no transformation in the European landscape even if there is a slow increase of the far right”, assured Stéphane Boujnah, CEO and chairman of the managing board at Euronext. It’s not that political instability has no impact; Boujnah acknowledged the greater spreads caused by Macron’s recent call for a snap election in France, but reassured that “nothing is going to happen that is going to transform the French economy in a matter of months”.

For commodity markets geopolitical disruption is business as usual, stated Chris Rhodes, president of ICE Futures Europe, an expectation built into operations. “It’s not the biggest factor driving decisions at the moment,” he said, but the market has risk management tools in place to deal with issues that may arise.

That said, the buy side is focused on the US election. There’s a particular eye on the impact results will have on the energy markets, Rhodes warned, observing a “heightened risk awareness” in the current climate.

Challenges

When polled, the audience cited regulatory burden as the biggest challenge for the derivatives industry in Europe over the next five years. Also of concern were outmoded and inefficient technology and the rising cost of doing business. A recent study from Acuiti and the FIA showed the same results, noted Bruce Savage, head of Europe at FIA, with regulation chosen as the primary challenge for growth and profitability across the majority of the industry.

“There is a reason that regulation is put in place,” affirmed Robbert Booij, designated CEO at Eurex, but added that there are areas where things could be simplified. Considering EMIR 3.0, Rhodes noted that there is a level of confusion when it comes to what is being addressed with active accounts.

Opportunities

On the other side of the coin, the audience named cost reduction and efficiency gains through technology investment as the biggest opportunity to develop and grow European derivatives markets over the next five years. Growth in new products and asset classes was seen as the second best space for opportunity, while a growth in retail trading was the least popular choice.

Booij highlighted the importance of following customer demand in the technology space, rather than releasing new products on spec. From a retail angle, he commented that some exchanges have managed to capture significant retail flow on options but that risks need to be carefully managed and corporate education is needed to engage flow in markets.

Looking ahead, Rhodes noted a focus on growing the pie across the industry. Taking an optimistic view on the future of the markets, Boujnah emphasised the importance of being a follower rather than a leader, he continued; “The climate is not the market, we are. We make things happen, we make decisions, we influence things. I’m not only optimistic about the market, I’m enthusiastic.”

©Markets Media Europe 2024

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GDF, ANNA and DTIF collaborate to establish digital asset standards

By

Lucy Carter

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June 20, 2024

Madeleine Boys, head of programmes and innovation, GDF

Global Digital Finance (GDF) has partnered with the Association of National Numbering Agencies (ANNA) and the Digital Token Identifier Foundation (DTIF) to establish standardised identification data and best practices within the digital asset industry.

Through the partnership, GDF, which provides a platform for digital asset innovation in financial services, stated that it aims to improve awareness and adoption of market standards that support stronger, transparent and more efficient bridges between TradFi and the digital asset ecosystem.

This partnership follows the ANNA-DTIF Task Force, established in 2021, which aims to ensure a complementary relationship between the International Securities Identification Number (ISIN) and Digital Token Identifier (DTI) ISO standards. In 2023 the initiative expanded to cover new ISINs assigned by ANNA (XT ISINs), based on DTIs for digital assets that are not financial instruments.

The ISO ISIN standard has already been adopted by the European Securities and Markets Authority (ESMA) under MiFID II reporting for regulated financial instruments, including tokenised securities. The authority is further expected to embed DTIs as the crypto-asset identifier under MiCA transparency reporting, order book, offering and record-keeping requirements.

Commenting on the partnership, Madeleine Boys, head of programmes and innovation at GDF, said: “Standards are key to unlocking efficiencies and driving transparency in financial markets. For regulators, global identification standards help bring consistency and transparency into new DLT markets. For market participants, this standard supports better effective risk management and has been commended by industry as a strong foundation for better interlinking digital finance and traditional finance.”

Stephan Dreyer, managing director at ANNA, added: “Since launch last year, the ANNA/DTI Foundation partnership has significantly progressed the introduction of new International Identification Securities Numbers (ISIN) to identify crypto assets to support industry transparency and interoperability.

“We are now delighted to be working with Global Digital Finance (GDF) to facilitate greater integration within wider industry communities.”

©Markets Media Europe 2024

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Bloomberg offers CSDR data in advance of go-live

By

Lucy Carter

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June 20, 2024

Patricia Torres, global head of sustainable finance solutions, Bloomberg

Bloomberg has granted users access to Corporate Sustainability Reporting Directive (CSDR) data in advance of the 2025 reporting deadline, available through both the Bloomberg Terminal and Data License.

Available data includes historical data of fields either reported voluntarily or under previous regulatory requirements. Additional data fields, covering mandatory and quantitative disclosures around financial and impact materiality, are set to be introduced.

The service uses the European Sustainability Reporting Standards alongside existing Bloomberg data fields. Currently covering data from firms expected to report in 2025, the firm will also include companies that begin reporting in 2026, it stated.

Access to CSDR data already being reported by companies will holistically inform firms’ sustainability strategies and streamline their own sustainability reporting, Bloomberg said.

On the release, Patricia Torres, global head of sustainable finance solutions, commented: “Better data drives better investment decisions, which is why Bloomberg is taking steps to ensure its clients will benefit from the tremendous increase in the quantity, quality and reliability of ESG data reported under CSRD. By providing high quality ESG data alongside financial data to our clients, we help them understand the sustainability profile of their investments and streamline their reporting.”

Nadia Humphreys, global head of sustainable finance data solutions, added: “Bloomberg has the scale and experience necessary to deliver the broad range of new ESG disclosures under CSRD to our clients in a timely and efficient way. This marks the first milestone of our CSRD solution, which will continue to evolve to capture the depth and breadth of available company-reported data, helping clients to take action and make well-informed decisions.”

©Markets Media Europe 2024

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Laser Digital completes Abu Dhabi licensing process

By

Lucy Carter

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June 20, 2024

Digital asset business Laser Digital has been granted a Financial Services Permission (FSP) by the Regulatory Authority of Abu Dhabi. This completes its licencing process with Abu Dhabi Global Market (ADGM).

With this approval, Laser Digital can provide broker-dealer, asset and fund management services for both virtual and traditional assets in and from ADGM. The firm’s UAE business is led by Jez Mohideen, with Ramin Shayesteh serving as head of distribution.

Backed by Nomura, Laser Digital provides scalable opportunities in trading, solutions, asset management and ventures.

Commenting on the licence, Mohideen said: “We are eager to contribute responsibly to the virtual asset industry in the UAE. We have always been committed to upholding the highest standards of compliance and regulations at ADGM, and we look forward to contributing to ADGM’s ecosystem.”

Arvind Ramamurthy, chief of market development at ADGM, added: We’re delighted to welcome Laser Digital as we expand our financial community to include partners such as Laser, whose offerings align with ADGM and the FSRA’s international best practices and progressive regulatory ecosystem.”

©Markets Media Europe 2024

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EFAMA calls for urgent action in single market as EU stocks struggle

By

Lucy Carter

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June 20, 2024

Bernard Delbecque, senior director, EFAMA

European equity UCITS are turning away from local stock investments, according to a recent report from EFAMA, necessitating “urgent action”.

This is a Europe-specific trend, the paper noted, with the majority of equity funds domiciled in the US and APAC prioritising local stocks in their portfolios – 78% and 84%, respectively. In the EU and UK, however, these figures are just 27% and 29%.

Reasons for this difference include advice from financial advisors, the benefits of cross-border investments, and the development of platforms that allow for investments in funds that track global indices, the paper said.

The comparatively small size of EU stock markets and enthusiasm for leading US technology companies have played a role in European allocation patterns, the paper added.

The US is a particular area of choice for equity UCITS to invest, as highlighted in the recent report from Enrico Leta; allocations have risen from 19.2% in 2012 to 44.6% at year-end 2023. EFAMA attributes this US success to population growth, increased research and development spending, reduced energy prices and fiscal stimuli.

In order to attract capital to the EU economy, Europe must “unlock the potential of the single market”. This includes reorienting the Retail Investment Strategy to encourage greater investment in capital market instruments from EU citizens and promoting retirement saving, which will help to bolster the EU’s available savings pool. A robust Capital Markets Union should also be established, per the paper, to provide more and better opportunities and outcomes for European companies and savers.

Additionally, “urgent action is needed to fix the root causes of the EU economy’s subdued growth outlook and enhance investment opportunities and returns,” the paper stated.

Commenting on the report, Bernard Delbecque, senior director at EFAMA, commented: “A decisive shift in EU policies, particularly competition and industrial policies, is required to enhance investment opportunities, boost the valuation of Europe-based companies in global stock indices, and increase asset owners’ investments towards EU companies. Once asset owners foresee more promising prospects in the EU, they will increase their investments in the region, thereby supporting the financing of the green and digital transitions.”

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Trading Technologies enhances product offerings

By

Lucy Carter

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June 19, 2024

Justin Llewellyn-Jones, chief oeprating officer, Trading Technologies

Trading Technologies (TT) has expanded its data and analytics and compliance product offering with the launch of TT Futures TCA and TT Trade Surveillance.

The former, a transaction cost analysis (TCA) tool for futures trading, provides customisable reports based on anonymised, microsecond-level futures market and trade data. This will enable analysis and enhancement of trading strategies, Trading Technologies stated, along with the measurement of trading counterparties’ efficacy.

TT Futures TCA makes use of TCA data from Abel Noser Solutions, acquired by TT in August 2023.

Users will be able to choose between three labels of service depending on their analytical needs, the company shared, with customisation available around the metrics, breadth and level of granularity. The service is currently available, and will be integrated into the TT platform as a front-end widget early next year.

TT Trade Surveillance is built on the company’s SCORE machine learning algorithm, and combines multi-asset coverage, configurable models and machine-driven learning models. The product will replace TT Score, the firm’s existing trade surveillance platform, with users being shifted to the new service in the second half of the year.

The new models included in the platform are designed to detect manipulative or disruptive trading activities including insider trading, front-running and naked short-selling practices. Users are able to construct synthetic instruments to identify potential manipulation across products and markers and harness the market data required for particular surveillance models in addition to using TT’s existing suite of online tools, the firm explained.

Ted Morgan, executive vice president and managing director of compliance, expanded on the news: “We’re building on our track record of innovation and investment in the product by extending our capabilities into new asset classes – consistent with our company-wide expansion – and more than doubling our surveillance models, putting more power into the users’ hands.”

Commenting on the launches, chief operating officer Justin Llewellyn-Jones said: “We are constantly in a mode of identifying opportunities that will enhance our clients’ experience, simplify their day-to-day operations, increase efficiencies and add value to the trade life cycle. The introduction of our new futures TCA and expanded multi-asset trade surveillance capabilities are the latest examples of how Trading Technologies and the TT platform play a pivotal role in the global financial markets.”

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BlackRock veteran John Lovell departs firm

By

Lucy Carter

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June 19, 2024

John Lovell has left BlackRock after spending more than two decades at the firm.

Lovell joined BlackRock as a vice president, later becoming a senior trader in the equities division with responsibility for trading pan-European equities, equities futures, options, swaps and exchange-traded products across asset classes.

Earlier in his career, Lovell was a senior trader at both Union Discount and Bankers Trust. In 1997 he founded JLO, a firm which placed traders into trading pits to execute trades on behalf of Bankers Trust and Barclays Bank.

Commenting on his departure from the firm via LinkedIn, Lovell listed particular highlights during his time at BlackRock including the mentorship of younger employees and the creation of a team capable of handling complex trades and products.

He continued: “Who knows what tomorrow brings? Maybe my journey is not complete. I just don’t know where it may go next. I am hoping to slow down and appreciate the things you don’t notice when you’re speeding along at 1,000 mph.

“When you spend 22 years at one institution there are so many people that you meet and many I hope will remain friends for many years to come.”

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The European Fund and Asset Management Association (EFAMA) has voiced its agreement with the FSB following the latter’s consultation report on liquidity preparedness for margin and collateral calls, published in April.

DTCC has appointed Brian Gallagher, Christopher Gelvin, Jon Herrick and Igor Modlin to its board of directors.

With volatility a constant market presence in recent years, and expected to be for the foreseeable future, regulators need to ensure that firms can access liquidity in the face of stress, panellists at this year’s International Derivative Expo conference agreed.

Political instability feels more of a threat than ever, but what impact is it really having on markets? Exchanges weighed in at this year’s International Derivative Expo conference, and considered other challenges and opportunities for European derivatives markets.

Global Digital Finance (GDF) has partnered with the Association of National Numbering Agencies (ANNA) and the Digital Token Identifier Foundation (DTIF) to establish standardised identification data and best practices within the digital asset industry.

Bloomberg has granted users access to Corporate Sustainability Reporting Directive (CSDR) data in advance of the 2025 reporting deadline, available through both the Bloomberg Terminal and Data License.

Digital asset business Laser Digital has been granted a Financial Services Permission (FSP) by the Regulatory Authority of Abu Dhabi. This completes its licencing process with Abu Dhabi Global Market (ADGM).

Trading Technologies (TT) has expanded its data and analytics and compliance product offering with the launch of TT Futures TCA and TT Trade Surveillance.

John Lovell has left BlackRock after spending more than two decades at the firm.

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