2011 Call for Paper and Grants

The Institute for Financial Markets (IFM), a nonprofit educational foundation and an independent affiliate of the Futures Industry Association, proposes to fund studies on high-priority issues whose understanding and potential resolutions are of critical importance to ensuring that global trading and clearing of derivatives continue to meet the price discovery and risk management needs of market participants.

The project will be managed and promoted by the IFM. Individual research studies will be subjected to a peer-review process and published in a special edition of the Review of Futures Markets, a financial journal. Research findings also may be published by the IFM in other print/electronic media, and used in IFM educational courses. Funding for annual research studies is made possible by a generous gift to the IFM by The Clearing Corporation Foundation Endowed Fund. For information about the IFM and Review of Futures Markets, please see http://www.theIFM.org.

Research may be conducted by academics and/or industry professionals and we encourage your creativity in crafting an insightful research project. Independent findings will be used to educate market users, policy makers, regulators, academics, and other interested parties.

View the full document here.

Hedge Funds May Pose Systemic Risk in Crisis, U.S. Report Says

Hedge funds and insurers might threaten U.S. economic stability in a time of crisis, according to a report aimed at helping regulators decide which non-bank financial companies warrant Federal Reserve supervision.

An exodus of hedge-fund investors could “cause activity in some markets to freeze,” said the Feb. 3 report by staff of the Financial Stability Oversight Council. The report, obtained by Bloomberg News, also said the failure of a large insurance company could “result in dramatic and destabilizing actions being taken by investors.”

The 80-page report is a preliminary draft that, without making recommendations, offers a glimpse of issues regulators, including Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner, will consider when deciding which firms should be designated “systemically important” and warrant central bank scrutiny. The council, created by last year’s Dodd-Frank financial overhaul law to prevent another financial crisis, may begin making those rulings by midyear.

Companies including Blackrock Inc., the world’s largest money manager, and lobbyists for the hedge-fund and mutual-fund industries have made the case to regulators they aren’t important enough to the financial system to merit the designation. Financial executives have said the costs of more regulation would put them at a disadvantage to their competitors.

Continue reading here.

Global regulators split over derivatives trading

By Huw Jones

LONDON | Fri Feb 18, 2011 2:01am EST

LONDON (Reuters) – Global regulators are split over which electronic platforms can trade derivatives to improve transparency, raising the prospect of banks shifting business in the $600 trillion sector to less restrictive countries.

The International Organization of Securities Commissions (IOSCO) was tasked by world leaders to flesh out a pledge that standardized derivatives contracts should be centrally cleared and, where appropriate, traded on a platform by the end of 2012.

Derivatives in the over-the-counter (OTC) or off-exchange sector are largely transacted bilaterally among banks — making it harder for supervisors to check who is exposed to which contracts when things go wrong, such as with the collapse of Lehman Brothers in 2008.

Hans Hoogervorst, chairman of IOSCO’s technical committee, said in a report on Friday that platform trading of derivatives would boost competition, transparency and supervision — as long as the conditions were not too narrow so that a wider range of contracts can be captured.

“IOSCO believes that it is appropriate to trade standardized derivatives contracts with a suitable degree of liquidity on organized platforms, provided that a flexible approach encompassing a range of entities that would qualify as such platforms is taken by regulators,” Hoogervorst said.

Derivatives are under the spotlight again as the planned merger of Deutsche Boerse and NYSE Euronext creates a massive derivatives hub to compete with the CME.

Such exchanges hope to capture a big slice of derivatives under regulatory pressure to migrate onto platforms and some regulators are keen for competition from other providers.

The report has been sent to the Financial Stability Board which has been tasked by the world’s 20 leading economies (G20) to coordinate tougher regulation following the financial crisis.

The FSB will update the G20’s finance ministers on progress in regulation in Paris on Friday and Saturday.

Continue reading here.

BM&FBovespa Profit Rises 19% on Derivatives Trading

By Camila Russo and Felipe Frisch

BM&FBovespa SA, the operator of Latin America’s biggest securities exchange, said fourth-quarter profit rose 19 percent after derivatives trading increased.

Net income excluding minority interests climbed to 261.5 million reais ($156.6 million), from 220.2 million reais a year earlier, the Sao Paulo-based company said in a regulatory filing yesterday. Adjusted net income was 368 million reais, while net revenue climbed 11 percent to 470.1 million reais.

Trading of derivatives contracts on BM&F exchanges increased as investors stepped up purchases and sales of interest-rate futures to bet on the path of borrowing costs. Equity volumes reflect a “slow recovery from the overhang” stemming from Petroleo Brasileiro SA’s $70 billion stock offering in September, according to Banco BTG Pactual SA.

The fourth-quarter results were “a little lower than our estimates,” said Daniel Malheiros, an analyst at Spinelli Corretora brokerage in Sao Paulo. “It’s not going to be a driver for the stock. The most important thing to look at is that they will have increased competition, so the margins should decrease in the long term.”

Spinelli Corretora has a share target price of 14.17 reais for December 2011 and a neutral recommendation on BM&FBovespa. The shares rose 0.3 percent to 11.94 reais in Sao Paulo trading at 10:40 a.m. New York time. Shares have fallen 9.1 percent this year, exceeding a 1.8 percent drop for the benchmark Bovespa index.

Continue reading here.

Banks To Be Among Winners Of OTC Derivatives Overhaul -Report

NEW YORK (Dow Jones)–Banks will be among the biggest winners in the new regime global regulators are writing for the $583 trillion market for privately traded derivatives, while swaps users will see “very little change in overall economics,” according to a report released Thursday from Morgan Stanley and consultancy Oliver Wyman.

The assessment runs counter to earlier speculation that banks’ revenues would suffer in the wake of the overhaul, with regulators trying to break the grip derivatives dealers have on the market and drive prices lower for the benefit of corporations hedging legitimate business risks.

Dealers make $30 billion to $40 billion in revenue globally each year making markets in over-the-counter swaps, said Robert Urtheil, partner at Oliver Wyman in Frankfurt, compared with $3 billion to $4 billion each year on exchange-traded futures.

While the overhaul may erode margins on OTC contracts by 5% to 10% annually–an estimate based on interviews and analysis of other markets that underwent similar changes–this will likely be offset by increasing volumes resulting from more efficient execution and new entrants, the report added.

“The threat that was coming was huge, so we see [banks] as winners, preserving the market structure,” said Urtheil. “The effect of regulation will probably not be as dramatic over time.”

Continue reading here.

UK names financial policymakers, sketches framework

* UK appoints Kohn, Cohrs, Lambert and Clark to new FPC

* UK says FPC must not hamper banks’ contribution to growth

* New consumer protection body to have power to ban products

(Adds context, Hoban quote)

By Matt Falloon

LONDON, Feb 17 (Reuters) – The British government named four external members of the Bank of England’s new Financial Policy Committee on Thursday, and fleshed out more detail on how it will overhaul UK financial regulation in the coming years.

The Conservative-Liberal Democrat coalition government, in power since May, is beefing up the role of the central bank to give it more power to maintain a stable financial system as part of measures to try to avoid another credit crisis. Former U.S. Federal Reserve Vice Chairman Donald Kohn, ex-Goldman Sachs and Deutsche Bank banker Michael Cohrs, former BoE monetary policymaker Richard Lambert and ex-BoE executive Alastair Clark will join the FPC as external members, the Treasury said.

“Today’s announcements are a crucial milestone in implementing the government’s plans for fundamental reform of financial regulation,” Treasury minister Mark Hoban said.

The FPC, headed up by BoE Governor Mervyn King and including other executives from the central bank and the soon to be extinct Financial Services Authority, is being set up as a macroprudential counterpart to the BoE’s Monetary Policy Committee.

Continue reading here.

Fed Chief Says U.S. Bolstered Its Ability to Handle Failure of a Big Bank

By EDWARD WYATT

WASHINGTON — The chairman of the Federal Reserve said on Thursday that banking regulators would be better able to deal with the failure of a large bank today than they were two years ago, thanks in part to the Dodd-Frank Act, which overhauled financial regulation after the crisis of 2007-8.

Ben S. Bernanke, the Fed chairman, told the Senate Banking Committee that it would be some time before all of the rules of the new law were in place but that regulators had begun to tighten risk standards and “certainly we’ve all learned lessons from the crisis.”

When Senator Richard C. Shelby of Alabama, the ranking Republican on the committee, asked what those lessons were, Mr. Bernanke replied, “The importance of being very aggressive and not being willing to allow banks, you know, too much leeway, particularly when they’re inadequate in areas like risk management.”

Mr. Bernanke’s comments came as he and other chief regulators sparred with lawmakers over whether new regulations would cost businesses and consumers too much, and whether they would adequately protect against another financial crisis.

The chairmen of the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and the Commodity Futures Trading Commission and the acting comptroller of the currency explained how their agencies were writing and carrying out hundreds of rules and regulations that were required by the law, which was signed in July. Read more of this post