Philip Stafford, FT, Global swaps market faces fragmentation, here.
Two rules have been introduced this month: the Sef mandate and a requirement for US banks with overseas branches or affiliates to clear their over-the-counter derivatives trades. They are intended to capture US hedge funds based in offshore financial centres such as the Cayman Islands, that used overseas branches as the counterparty to their swaps trades.
Market participants say they have been unwilling to trade on a Sef for fear of being caught under Dodd-Frank rules.
A difference in regulatory regime can mean a difference in millions of dollars of collateral that investors have to put up to back their derivatives trades.
In response, banks including Bank of America Merrill Lynch have set up London-based affiliates that are legally defined as a “non-US person”. Many have used a legal definition drawn up in August by the International Swaps and Derivatives Association, the derivatives trade body.