While Wall Street watchdog Commodity Futures Trading Commission (CFTC) has asserted that the majority of derivatives should be cleared using swap execution facilities (SEF), this view has met stiff resistance from industry insiders.

Banks are arguing that while highly liquid financial products are suitable for electronic trading, other financial instruments should be traded via voice, according to Financial News. These market participants believe that forcing the bulk of derivatives to be traded via SEF will raise costs for both banks and the users of the risk management tools. Rising costs of hedging risk could put pressure on users to utilize other financial instruments.

The media outlet reports that the CFTC takes a different approach, arguing that utilizing SEFs will lower costs for users of derivatives. The agency stated earlier in 2011 that failing to push these derivatives trades to electronic exchanges will increase the opaqueness of pricing the financial instruments.

Electronic trading of swaps has risen significantly in anticipation of adopting the new regulations. Tradeweb Markets LLC announced in a statement released October 3 that trading activity on its global interest rate derivatives platform spiked 90 percent between Q3 2011 and the same period in 2010. 

On Monday, the Reserve Bank of India (RBI) issued a report detailing a new process for banks which offer derivatives products. Financial institutions that offer derivatives deals to companies will have to be supported by the corporate board to complete transactions, reports The Economic Times.

Moreover, companies that ink these deals will have to detail their mark-to-market loss (MTM) on a regular schedule. They'll also have to submit detailed board resolutions to the banks selling the derivatives deals, according to the news outlet.

The goal of the proposal is to reduce disputes between companies and banks, and limit risk for banks. Moreover, the move will hopefully keep these complex products from being mis-sold to local companies, reports The Wall Street Journal. The rules are also meant to disallow foreign banks that can't price products locally from becoming market makers.

According to the Times, PricewaterhouseCooper partner Kumar Dasgupta said, "This is a good thing. It brings about proper risk management and will stop a lot of speculative positions being taken without people thinking it through. Companies need to think about the benefits and risks involved in a complex derivative."

The resolutions that are submitted to the corporate boards must specify which products will be transacted, detail limits, and detail which person has the authority to sign agreements.  

The Wall Street Journal reports on the potential for high-frequency trading of the dollars futures contract on the Mexico derivatives market, MexDer, in the next months. Foreign investors, in particular, will bring this trading to Mexico. Mex Der is the second largest exchange in Latin America.

Yesterday, the Chicago Mercantile Exchange (CME) and MexDer announced their north-to-south routing agreement. U.S. customers will now be able to access MexDer’s derivatives contracts, and Mexican investors can access the foreign currencies, equity index, commodities and other benchmark derivatives contracts under CME.

CME is considered one of the most diverse derivatives markets in the world. The market entered its second stage of north-south order routing, which began in April, bonding with the Mexican market.

In a statement, Phupinder Gill, CME’s president, said, “Mexico is the 13th largest economy in the world and we continue to look for opportunities to provide our customers around the world with the broadest and most diverse range of globally-relevant products to help them manage their risk.”

At a news conference, Jorge Alegria, the chief executive of MexDer, said that foreign investors are most interested in futures on Mexican fixed-rate government bonds and on the benchmark PC index of the stock market. MexDer’s dollar futures contract is also attracting attention from investors, the news source reports.