The Disappearing Derivatives … Mystery Solved?

It’s 3pm – do you know where your collateral is? Lenient? Isn’t that what Lehman said before they were thrown into bankruptcy and lost their assets to Europe because their bankruptcy rules are different too?

Justice League

With everything going on with Wall Street you may have missed a Reuters article by Charles Levinson that talked of hundreds of billions of dollars of trades by U.S. banks which went missing early last year.
Has the mystery of these disappearing derivatives been solved? Well, maybe.
It seems the trades had not really disappeared, they’d just been resettled, so to speak, thanks to a loophole that had been handed down in 2013 by the Commodity Futures Trading Commission( CFTC). Thanks to the changing of a few key words in swaps contracts, that loophole allowed for trades to be shifted to Europe where the regulations governing trades are by far more lenient than in the U.S., and largely outside of many of the restrictions mandated by Dodd-Frank.
This loophole impacted some of the most widely traded financial derivatives in the world – incidentally, some of the same instruments that helped bring down the economy in 2008 and which eventually…

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