FX options clearing lag threatens EM hedging

摘要

With the implementation of an initial wave of Dodd-Frank swaps reforms in the US largely completed in the rates and credit markets, attention has turned to foreign exchange, the next major asset class to be drawn under mandatory clearing, trading, and reporting requirements. The CFTC plans to release proposals for the clearing of FX non-deliverable forwards in the second quarter, according to commissioner Scott O'Malia. But the clearing of FX options, the other half of the mandate, is likely to lag. The lag could cause problems for hedging emerging market NDFs with non-deliverable options. Clearing members note that margin offsets will be lost on certain combinations of options and NDFs, with one product in a cleared environment and the other bilateral.