Members and staff of the U.S. Commodity Futures Trading Commission are weighing whether to require that contracts for non-deliverable forwards be guaranteed at clearinghouses that accept collateral from buyers and sellers.
The regulation would apply the clearing rule to contracts for a dozen currencies, including China’s yuan, South Korea’s won and Brazil’s real.
The CFTC’s global markets advisory committee, led by Commissioner Mark P. Wetjen, plans to discuss the matter at a meeting tomorrow, scheduled to include agency staff and David Bailey, director of financial markets infrastructure at the U.K. Financial Conduct Authority. A new rule would expand on CFTC mandates that require clearing for interest-rate and credit-default swaps.
Non-deliverable forwards are contracts to buy or sell a currency in the future that are settled with cash rather than delivery of the currency. The contracts, typically settled in U.S. dollars, are used to hedge or speculate on the future price of a currency facing capital controls or restrictions that make delivery outside of its country difficult.
A requirement to guarantee them at clearinghouses owned by LCH.Clearnet Group Ltd., CME Group Inc. (CME), Intercontinental Exchange Inc. (ICE) and Singapore Exchange Ltd. (SGX) might accelerate electronic trading of the contracts on new CFTC-regulated platforms and threaten profits in the $5.3 trillion daily market.
The CFTC has adopted rules under the 2010 Dodd-Frank Act to reduce risk and boost transparency in the $700 trillion derivatives market. While the Treasury Department exempted foreign exchange swaps and forwards from the agency’s clearing requirements, the exclusion doesn’t apply to non-deliverable forwards.
Banks Face 25% Loss-Absorbency Rule in Too-Big-to-Fail Plan
The largest global banks will have to hold more capital and liabilities than previously reported that can automatically be written off in a crisis -- as much as a quarter of risk-weighted assets -- as regulators take on lenders deemed too big to fail.
The Financial Stability Board is developing minimum standards that will limit the double-counting of capital banks use to meet existing international rules, according to an FSB working document sent for comment to Group of 20 governments and obtained by Bloomberg News.
The restriction means that, while the basic requirement will be set at 16 percent to 20 percent of risk-weighted assets, the final number will be higher because the banks must separately meet “other regulatory capital buffers,” according to the document, dated Sept. 21. The FSB in Basel, Switzerland, declined to comment on the nonpublic document.
The FSB, comprised of regulators and central bankers from around the world, plans to present the draft rules to a G-20 summit in Brisbane, Australia, next month.
Compliance Action
Sanofi Notifies U.S. Authorities About Allegations of Bribery
French drugmaker Sanofi (SAN) has alerted U.S. authorities about allegations of bribery activity in the Middle East and Africa, the latest pharmaceutical company to investigate such claims overseas.
The allegations from an anonymous source involve improper payments in connection with the sale of pharmaceutical products from 2007 to 2012, Paris-based Sanofi said Oct. 6 in a statement. The company said it has notified the U.S. Justice Department and Securities and Exchange Commission and expects the probe to take “some time,” since the alleged activity dates back several years.
Sanofi said it’s too early to draw conclusions about the claims it uncovered.
“Sanofi takes these allegations seriously and does not condone wrongdoing by any of our employees,” Dante Beccaria, its global compliance officer, said in the statement.
Peter Carr, a Justice Department spokesman, declined to comment. A representative of the SEC couldn’t immediately be reached for comment.
Courts
London Metal Exchange Wins Case Over Rusal Warehouse Ruling
The London Metal Exchange, the world’s biggest metals bourse, won an appeal of a court ruling that thwarted its plan to ease delivery backlogs at warehouses.
The U.K. Court of Appeal in London ruled today that the consultation process for the rules wasn’t unfair or unlawful, overturning a lower court judge’s ruling in March. The appeal panel said that the earlier decision went too far.
“It would considerably increase the burden for consultant bodies if they had to consult on all the options which they were not advancing,” the judges wrote in today’s ruling.
The LME, which oversees more than 700 warehouses, was blocked from imposing part of new warehouse rules in April because of the legal challenge mounted by United Co. Rusal, the world’s largest aluminum producer. The LME issued a new rule that storage facilities with the longest wait times had to release more metal than they took in.
The metal exchange said in an e-mailed statement after the decision that it will “shortly” announce the timing of its new warehouse rule.
Rusal said in a statement that it will seek permission to appeal to the U.K. Supreme Court. The Moscow-based company said it was seeking to increase transparency in the market and that the appeal court’s ruling “will do little to address the problems caused by disparities between the LME price and premiums or the general lack of transparency.”
The initial case was United Co. Rusal Plc v. London Metal Exchange, case no 14-1404, U.K. High Court of Justice, Queen’s Bench Division.
