ECB threatens to stop trading swaps with US counterparties

Discussion in 'Wall St. News' started by nitro, Oct 25, 2011.

  1. nitro


  2. C6H12O6


    Boring regulatory requirements, they ask foreign central banks exemption from parts of Dodd-Frank Act
    Maybe the average zerohedge readers read only the title LOL :D
    Buy GOLD !! The world's gonna end !!! :D
  3. JamesL


    ECB invokes US legal amendment providing it with broad immunities and says it might stop using US dealers unless granted exemptions from Dodd-Frank Act rules

    The European Central Bank (ECB) has warned in a letter to the Commodity Futures Trading Commission (CFTC) that it might have to stop trading over-the-counter derivatives with US counterparties if it – and other eurozone central banks – are not granted exemptions from clearing, execution and reporting elements of the Dodd-Frank Act. The ECB also wants to be exempt from proposed rules on margining for uncleared trades.

    The threat will come as no surprise to US swap dealers, who have been warning for months that the rules would drive away foreign sovereign customers – two European debt management offices told Risk in May they would turn to non-US counterparties if they were caught by the uncleared margin rules.

    The ECB argues foreign central banks should be exempt from Title VII of the Dodd-Frank Act – which relates to OTC derivatives markets – citing potential legal uncertainties arising from the Act, and suggesting that elements of Title VII undermine the immunities and exemptions the ECB enjoys under the International Organizations Immunities Act (IOIA), which was amended in 2002 to include the ECB. The letter, dated October 11, invokes the IOIA on seven occasions, and warns that if no exemption is forthcoming it might have to reconsider doing business with US banks.

    "If regulatory requirements are imposed on foreign central banks, the ECB and other central banks might shift swaps activity away from the US markets or US counterparties. This would reduce the liquidity of the US markets, constrain the competitiveness of US counterparties and reduce the effectiveness of central bank actions," states the ECB letter – its second letter to the CFTC asking for an exemption from the rules.

    The central bank requests a blanket exemption from Title VII by excluding any agreement, contract or transaction to which the ECB or any other eurozone central bank is a party. In lieu of a general exemption, the ECB requests specific relief from particular provisions of Dodd-Frank, including written confirmation that it shall not be designated a swap dealer or a major swap participant.

    In addition, the ECB requests clarity that it will not have to comply with data-reporting requirements – again invoking the IOIA, which states that "the archives of international organisations shall be inviolable". It also argues it should not be regarded as a financial entity under the proposed margin requirements for non-cleared swaps – a requirement that would force US dealers to collect margin from the ECB.

    "We disagree that the risk posed by the ECB as a central bank merits treatment as a financial counterparty. We therefore request that the ECB be characterised as a non-financial entity for the purposes of the rules on margin for uncleared swaps," the letter concludes.

    The central bank also notes that the Federal Reserve Board receives a blanket exemption from swap regulation under Dodd-Frank and a failure to extend the same exemption to foreign regulators would undermine Section 752 of the reform law, which requires regulators to co-ordinate to achieve "consistent international standards". It would also be likely to encourage other jurisdictions to bestow exemptions upon domestic central banks but not foreign ones, the ECB warns.

    The ECB's concerns were echoed in an October 5 letter from the World Bank's International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), which jointly retained law firm Sullivan & Cromwell to investigate the probable impact of Dodd-Frank on both agencies' derivatives activities after meeting with CFTC chair Gary Gensler on July 6.

    The opinion from the law firm was that "regulation of the IBRD and IFC under Title VII of the Dodd-Frank Act would constitute a breach by the US of its international obligations under the Articles of Agreement of each organisation as implemented by US law. The opinion further concludes that the Dodd-Frank Act does not authorise any such curtailment of the privileges and immunities of the IBRD and IFC."

    The two bodies had also written jointly to the CFTC on April 5 expressing concerns about the proposed definitions of swap and security-based swap, and the adverse effect the proposed language could have if it did not include a specific exemption for transactions involving multinational development institutions.
  4. Zerohedge readers see the world going under every day for the last 3 years. Meanwhile, one has to think that the whole Zerohedge "project" is nothing else than a trap for the short sellers of this world....set upby Wall Street. :D
  5. Zerohedge readers see the world going under every day for the last 3 years.


    As opposed to the world rebounding and flourishing?

    have you not paid attention to all "aspects" from Political to Financial around the world the last three years?

    Not saying the world is ending....but it sure the fuck isn't moving into a prosperous stage.