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M’sian banks may reduce derivative trading with US due to new rules

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M’sian banks may reduce derivative trading with US due to new rules Empty M’sian banks may reduce derivative trading with US due to new rules

Post by hlk Mon 10 Sep 2012, 09:27

PETALING JAYA: The harsh new derivative rules which will be
implemented by the US authorities on non-US banks next year could see
Malaysian banks reducing their derivative trading with their US
counterparts and instead deal more actively with those that do not have
a presence in the United States, according to a bank official.
OCBC Bank (M) Bhd
head of global treasury Ng Seow Pang said the tough rules proposed by
the US law makers would not only impact Malaysian banks but the global
banking system as a whole.
In its present draft form, the rules
were intrusive and infringe upon the sovereignty of Malaysia as it was
aimed at protecting the US financial system, he told StarBiz.
Malaysian banks may review their relationship with their US
counterparts and a possible alternative market could develop to
compensate for what the US banks cannot provide due to their regulatory
constraints.
“Ultimately it boils down to the returns generated
from the additional capital needed to keep the relationship with US
banks. If it is deemed too punitive in the present environment where
capital is a scarce commodity, then an alternative market comprising
banks with non-US presence may be created.

[You must be registered and logged in to see this image.] “In
the financial line, you have to look at losses from the angle of
returns on capital. If unjustified, then the Malaysian banks will have
to make hard decisions on whether to continue dealing with US banks,’’
he added.
Reuters had said that Asian banks were
reviewing relationships with their US counterparts to avoid being
caught by tough new American rules on derivatives trading that would
come into force next year.
It said five Asian and Australian
regulators had sent a joint open letter to the Commodity Futures
Trading Commission (CFTC) to review the proposed rules in view of
potential for conflict with domestic rules and the risks of systemic
instability. The Australian Securities and Investments Commission, the
Hong Kong Monetary Authority, the Monetary Authority of Singapore, the Reserve Bank of Australia
and the Securities and Futures Commission in Hong Kong had asked the
CFTC to liaise with regulators from other regions before it finalises
its guidance on how its derivative rules should be applied overseas.
The
wire agency said that beginning next year, non-US banks that annually
deal in at least US$8bil worth of products such as interest rate swaps
with American counterparties would be subject to new derivatives rules
in the Dodd-Frank Act.
This meant that they would need to
register as swap dealers with US regulators and abide by their rules on
capital requirements and risk management, all of which would add to
costs. The Dodd-Frank Act was spurred by the 2008 financial crisis and
aims to impose tighter supervision of cross-border derivatives trade.
A number of Malaysian banks contacted by StarBiz declined to comment on the US derivative rulings and how it would impact them.
Ng
said the rules would not only ring-fence the US operations of Malaysian
banks but would extend to even the head office of the Malaysian bank.
This
would provide competitive advantage to US banks in terms of technology
and expertise in the international arena while, domestically, the rules
would give rise to several difficulties, he noted.
hlk
hlk
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