Newsletter

NEWSLETTER — MAY 2016
Change is the only thing which is permanent, continuous
regulatory change in financial markets is the need of an hour.
We have also heard this phrase that “COMPLIANCE IS NOT A
GOAL INSTEAD IT’S A JOURNEY”
In this issue
MiFID II P.1
Expert Speak—BASEL IV? What is the key? P.1
Expert Speak contd.. P.2
MiFID II—Story contd..P.3
Corporate Actions P.4
MiFID II
MiFID journey began way back in 2004 when it was initially adopted and actually
came into force in November 2007. MiFID basically positioned to improve the competitiveness of EU financial markets by creating one single market for all kinds of investment services and activities. It ensured a high degree of harmonized protection
for investors in all categories of financial instruments, like shares, bonds, derivatives
and different other structured products.
Continued on Page III
Expert Speak
BASEL IV? What is the key?
BASEL accords have evolved since the inception in 1988
till today when the buzzword BASEL IV is looming in
financial markets. “Basel IV is coming”, “Basel IV is not
coming” this should not be the topic for discussion as
BASEL III has a clear roadmap for the implementation of
various standards based on risk based capital, liquidity
standards and leverage ratios. Basel III has also set regulations for domestic systemically important banks (DSIBs) and global systemically important banks (G-SIBs)
and financial markets have decided milestones on D-SIB
and G-SIB regulations across the globe.
Continued on Page II
“Key is the sound risk data
aggregation and risk
reporting system. In its
supplemental guidance
for pillar II, Basel committee advised that sound
risk management system
should have a responsive
management Information
system (MIS).
”
Editorial
Financial markets have been
encountering plenty of changes in
regulatory horizon. Markets and
institutions are still making fixes to
crack the code. These changes
sometimes make institutions jittery
if they are not well prepared. Sound
data management practices and
governance are the prerequisites to
adapt the change.
Banks & Capital markets are the
most important organs of financial
markets. Their adaptability with
regulatory changes is the must.
MiFID II story is discussing the
forthcoming changes for capital
markets.
BASEL III would also change to
strengthen the banking industry
but what if, we don’t know the key
to unlock this change. So let’s read
and understand “THE CHANGE”.
Points to ponder:
Principles of Data aggregation and risk reporting
BASEL IV? What is the key? contd...
Since the adoption of BASEL I in 1988, the prudential banking accord has been
 Governance
working for health and wellbeing of banking system to safeguard the savers and
providing equal playing field to the institutions. BASEL I was arbitraged by the
banks because it was more aligned towards credit risk but in 2004, almost after a quarter of the century, the accord brought more risk management and capital adequacy in form of BASEL II. It brought three pillars to strengthen capital
base, maintaining liquidity and governance for systemic risk mitigation.
 Data architecture and IT infrastructure
 Accuracy and Integrity
 Completeness
 Adaptability
 Accuracy
 Comprehensiveness
 Clarity and usefulness
 Frequency
 Distribution
 Review
 Remedial actions and supervisory
measures
 Home/host
Every crisis teaches a lesson and so 2008 financial crisis taught to the
banking industry. The advent of BASEL III came as aftermath of the crisis to
set up a resilient banking system. The prudential accord strengthened the
three pillars and also accentuated on risk reporting and data aggregation. In
its supplemental guidance for pillar II, Basel committee advised that sound
risk management system should have a responsive management Information
system (MIS).
BASEL III requires good quality counterparty
reference data and CreditDimensions has
that competency. We have been processing
industry standard counterparty data to our
clients for past several years. Our well versed
data stewards have resolved numerous major
& minor data issues. CreditDimensions
MatchPro module has the ability of cross
referencing data identifiers which helps
creating a single source of data across the
institution. CreditDimensions have delivered
data aggregation and exception resolution
solutions to multinational investment banks
and other financial services institutions.
Effective risk data aggregation and risk reporting system demands strong
governance modal following the Basel's principles and guidance. It must have
sound data architecture and IT infrastructure for responsiveness specially
in times of stress. It must also produce accurate and reliable risk data
including all material data across the institution in a timely manner. This
sort of system would be complete if it has also the ability to act in an ad-hoc
fashion and response quickly to the management for on-demand reporting
requests. Reports produced by the system should accurately reflect the risk
presenting an in-depth analysis of bank's operations and risk profile. The
I. III.Hong
Monetary authority (HKMA)
TheKong
office
information in the reports must be crystal clear and the management
should
of
the
set frequency of the report for the effective decision making. For II.
the remedial
The Securities and Futures Commission (SFC)
actions and supervisory measures, reports must be distributed for review to
a well coordinated team of supervisors.
DATA ELEMENTS FOR MIFID
MiFID II….contd
Now with this existent journey of compliance which is an aftermath of global
financial crisis of 2008, investor’s protection is of prime importance, and MiFID
(Markets in Financial Instruments Directive) is also been regress , taking
twists and turns to fulfill all the current demands of market.
Lately MiFID 2 is one of the reforms which have been most controversial and
most awaited in financial market. European Union has decided to review the
existing framework and will result in revised Markets in Financial Instruments regime (MiFID II/ MiFIR), which is scheduled to be implemented across
the EU by January 3, 2017.
Scope of MiFID II is much higher than MiFID I, till date the industry has not
seen any such single regulation whose impact will be so vast and humongous,
which would be covering all the market participants namely exchanges, broker
firms, buy side and sell side. MiFID II would cover everything from how and
where derivatives can be traded, to how reduced volatility can be measured
and also governs how to control conflicts of interest among financial advisors.
CreditDimensions experienced
professionals can provide extensive
expertise, when any investment bank needs
it. Implementation of MiFID II requires
extensive data searching and data
maintenance. CreditDimensions is already
aligned and researching to provide key data
elements and process solutions.
Did you know...
Hestatt risk???
Yes, Herstatt risk is usually known
as The settlement risk. Herstatt
bank was a private bank in
Cologne, a German city. It went
bankrupt on 26 June 1974. German
regulators forced the troubled bank
into liquidation. Because of the liquidation and cross jurisdictional
implication a number of US banks
lost hefty amount of US dollars
which was supposed to be delivered
by Herstatt in New York in exchange of Deutsche Marks (DEM German Currency until the adoption
of EURO in 2002). Mainly, time
zone difference and cross jurisdictional implications caused the risk
of settlement.
Seeing this horizon of MiFID II it’s really crucial for investment banks to understand in depth impact of MiFID II within their organization and try to work step
by step in a planned fashion.
MIFID II has been primarily divided into 5 pillars for investment banks to understand there area of concern on which they need to elucubrate.
Corporate Action & Announcements
Announcement
Mitel (Nasdaq: MITL) (TSX: MNW)
(LEI 549300UFIKCL8N6OYG97) and Polycom (Nasdaq:
PLCM) (LEI SHXM9G96BYS3ZFFUSP77 ), announced on
Apr 15, 2016 that the companies have entered into a definitive merger agreement, wherein Mitel will acquire all the
outstanding shares of Polycom (common stock) in a cash
and stock transaction, which will be valued around $1.96
billion. Mitel’s and Polycom’s share prices as on April 5,
2016 is unaffected.
Completion of merger
Gaming Partners International Corporation (NASDAQ:
GPIC) which is a leading worldwide provider of casino currency and table gaming equipment. It announced on May
11, 2016, that GPIC has completed purchase of the assets of
Dolphin Products Limited, for approximately $5.9 million
its wholly owned subsidiary of Entertainment Gaming Asia
Inc. (NASDAQ: EGT). Additionally, earn-out payments may
also be made based on revenue from certain casinos. Dolphin was basically a leading manufacturer and distributor
of RFID and traditional gaming chips.
CDi Times
ISSUE 01 APRIL 2016