EU to miss Sept deadline for swap rules

Bloomberg

The European Union will push back the completion of collateral rules for the multi-trillion-dollar swap market to the end of the year, breaking with US authorities who have set a September deadline for the biggest banks to comply.
The European Commission, the EU’s executive arm, won’t be able to meet the deadline adopted by the US — and laid out as a goal by global regulators — for standards that seek to ensure banks have sufficient collateral to backstop transactions done directly with other traders, according to Vanessa Mock, a spokeswoman for the Brussels-based commission. The September deadline applies to trades conducted by the largest banks.
“The small number of firms covered by the first wave of the requirements will in many cases also be covered by rules in other jurisdictions and therefore should continue to prepare for implementation,” Mock said in an e-mailed reply to questions. “Our objective is to deliver the standard before the end of the year, and for firms covered by the first wave of the rules to be required to comply before the middle of next year.”
Mock said the commission supports the standards laid out by global regulators “and intends to bring them into force as soon as possible.”
The commission, which received final draft technical standards from three EU regulators in March, said it is still reviewing the rules.

Initial Margin
The EU regulators proposed that the requirements enter into force on Sept. 1 this year, and that “market participants that have an aggregate month-end average notional amount of non-centrally cleared derivatives exceeding 3 trillion euros will be subject to the requirements from the
outset.”
The move underscores how US and European regulators have moved at different speeds to adopt comparable regulations for global financial markets. The over-the-counter derivatives market, estimated at US$493 trillion by the Bank for International Settlements, is dominated by the biggest banks, such as Citigroup Inc and JPMorgan Chase & Co, which are active around the world.
“We just heard about this this morning,” US Commodity Futures Trading Commission Chairman Timothy Massad said to reporters Thursday after a speech at a Sandler O’Neill & Partners LP exchange conference in New York. “I wouldn’t expect us to delay.”
Japan and Hong Kong are ready for the Sept. 1 date, Massad said. “Everybody’s been moving toward Sept. 1. It’s still a good date,” he said. Massad said the CFTC will confer with European regulators about their decision to delay.

Fully Effective
The standards may require EU buyers and sellers of swaps to set aside 200 billion euros (US$226 billion) to 420 billion euros in total once they are fully effective in 2020, according to the EU regulators. US bank regulators led by the Federal Reserve estimated last year that the rules could require firms in the US to have US$315 billion in initial margin.
The International Swaps and Derivatives Association had said the timeline presented a challenge for the industry to comply by September.
“We believe it’s positive that European regulators spend the necessary time to ensure the rules are appropriate, and we will continue to work with authorities and the industry to comply with the relevant deadlines,” Scott O’Malia, ISDA’s chief executive officer, said.
Emma Dwyer, a partner at Allen & Overy in London, said a delay in Europe raises questions about how firms will comply with regulations taking effect elsewhere and without final EU standards.
“I’m sure the delay is welcomed on a basic level, but without the same delay on a global basis market participants will be left grappling with how to implement rules in a piecemeal manner,” Dwyer said in an e-mail. “Frankly it’s a mess unless the US and everyone else delays too.”

Banks in Europe face more declines 

Bloomberg

The Nordic region’s banks will watch from the sidelines as the biggest European lenders succumb to increasingly heavy competition from the US
The head of investment banking at Norway’s biggest lender, DNB ASA, says the largest financial conglomerates in Europe appear to be losing the investment banking race, as capital-rich US rivals squeeze them from one side, while local expertise prevents them from gaining a proper foothold in regions like Scandinavia.
“We see this trend of banks gaining over non-banks, Nordic banks gaining over pure one-country banks and US banks are in general gaining market share over European banks,” Ottar Ertzeid, head of DNB Markets, said in an interview. “You can call it stuck-in-the-middle, and they suffer from that.”
European banks have struggled to keep up with their US competitors in an environment dominated by negative interest rates and slower economic growth. Deutsche Bank AG, Credit Suisse Group AG and Barclays Plc are all cutting thousands of jobs and selling assets in an effort to adapt.
Meanwhile, US banks are benefiting from a swifter restructuring process after the financial crisis, Ertzeid said.
As European banks cut back in an effort to support profits, the “downsizing, trimming” also has a flip side. It “has consequences for the customer offerings they are able to provide, making it difficult to compete,” he said.
“The US corporates use capital markets much more than in Europe,” Ertzeid said. “So the US has a stronger home market. Fee levels have been kept higher in the US so they actually have home turf advantage by having a strong domestic business with attractive fee levels making it easy for them to make more money.”
Meanwhile, regions like Scandinavia are faring better thanks to a richer client base and as it proves difficult for banks from the outside to dent the market dominance of local lenders.
DNB Markets has expanded in Scandinavia in recent years and Ertzeid says his unit is continuing to recruit, especially at its Stockholm
office.
“It’s actually better to be a regional player and have a regional niche and focus” he said.
“We have ambitions to be good on the Nordics and perhaps shipping and seafood. But we don’t have ambitions to compete with the US
investment banks globally.”