The Banking and Strategy Initiative

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Meet the Volckers Marathon Pt IV – Welcome to Singapore

Editor’s Note: FX Swaps and Forwards are exempt from the clearing reqt in both US and Singapore. Another choice allowing  Central governments, central banks and supranational institutions such as the International Monetary Fund to be exempted from the requirements is promising however, if there were no diplomatic snafus and tete a tetes in an ideal world. 

Though as hair brained as any other scheme thought of by Monetary Authority of Singapore and the Ministry of finance, the deal is getting a lot of market attention as Singapore thinks it can revive SIMEX and its other Futures exchanges with non mandated trading of OTC deruvatives. While 20% of derivatives may be standardised contracts 4 in 5 are based on a aspecific set of nbusiness conditions and as yet were also used for aggressively putting the shutters on pricing trends to help make eacvh others’ customers none the wiser and probably honestly to keep up a good market in volume and price and not keep riding each others’ toes.

Global banks still think another 20% ogf their derivatives as many as $ 500 tln worth may be not brought into Dodd Frank limitations in the US as they are international, Singapore is proposing the entire mountain of OTC derivatives with large contracts not come back top a trading house later to keep its pricing between the two parties of the contract.

What will happen further in this regulatory arbitrage is anything but clear. For one, no one is gone to shop yet even in Europe and US that they wll be sharing pricing data with their competitors and these products cannot guarantee any liquidity

Profits on OTC platforms rely on the availability of Obfuscation and illiquidity as a strategy .i.e find a seller for credit protection of a default or buy such protection play the spread and then default or as seller disappear before the default and that per se will not be allowed even in the Singapore Regime. What mat be allowed by this regulatory arbitrage is trading and creation of a market for those risky secvtor derivatives which could not be planned on a public exchange and Europe and US should not worry about it for more than two minutes with  their cup of starbucks Joe or French roast as they choose.

China for example will be bringing a great deal of global Yuan business with lot of derivatives choices to expand the market anyway and they will unlikely touch the port near Malaysia much except for tourism as usual.

The eighth largest derivatives market accounts for hardly any volume with a misleading $10 ltn in notionals hardly more than the 150,000 odd contracts on Europe, signify a dull listless CDS market per se. and a global volume of $707 tln in offshore derivatives

The notional value of derivatives transactions in Singapore amounted to $9.8 trillion in 2010, the MAS said, citing data from the Bank for International Settlements. Interest-rate derivatives products account for 55 percent of the market, while 38 percent are foreign exchange derivatives. The rest are commodities, which are currently regulated by International Enterprise Singapore, the country’s trade regulatory agency.

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