Basel III

US Congressman Patrick McHenry recently sent a letter to Federal Reserve Chair Janet Yellen criticising the Fed’s participation in setting global banking rules of conduct and asserting that standards are agreed in opaque settings. But standardisation lowers business costs in finance as in manufacturing – for American banks and investors as well as their international counterparts. A common set of rules for the global financial industry is just a matter of common sense, argues Thomas Murray.

Nasdaq OMX Clear was the first CCP (central counterparty clearing house) to be reauthorised under EMIR (the European Market Infrastructure Regulation) on 18 March 2014. Since then, however, the clearing mandate has been postponed twice, with the new capital requirements that will require clearing activity to be conducted at a Qualified CCP, such as Nasdaq OMX, now set to become active on 15 December 2015.

Compression is the process by which trades (in the context of this article; OTC Swap transactions) in the same standardised contract offset, or partially offset, and as a result it may be possible for a client and/or clearing member to net these trades. Increasingly this is a service that is being offered by central counterparty clearing houses (CCPs), in partnership with third-party providers such as TriOptima, as trades are already matched and reconciled resulting in a process that is streamlined. One of the objectives of compression is to reduce the notional outstanding amount by creating a new replacement contract that removes the offsetting exposure without affecting the market risk of the portfolio.

The notion of a Qualifying, or ‘Q’, CCP was first established by the Basel Committee on Banking Supervision (BCBS) in July 2012 in their paper Capital requirements for bank exposures to central counterparties (BCBS 227). In order to be designated as a QCCP, the CCP must meet three criteria:

The Basel Committee has released its latest findings on the implications of the Basel III standards for financial markets