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  1. 1. SPECIAL REPORT ASIA PETROLEUM REVIEW ASIA PETROLEUM REVIEW SPECIAL REPORT OTC Swaps Face Legal Void said David Wech at JBC Energy. million barrels that is made available, gasoil futures curve. European run rates are already and what ultimately will be taken European ICE gasoil futures are hovering near post-recession lows at up by the market will depend on the currently in a $4 contango -- a structure As CFTC Misses Deadline 79 percent of capacity and at least 10 marketing mechanisms chosen to where the front month contract is percentage points below U.S. levels -- make that oil available: so essentially below those further in the future -- and largely because of the hefty premium the prices at which the national some traders expect the stock release of European benchmark Brent crude to agencies sell that oil”, BNP Paribas’ could steepen this structure and make U.S. futures. head of commodity markets strategy storage more lucrative. While it will be mandatory under the Harry Tchilinguirian said. But as with the multi-billion dollar IEA measures for holders of commercial storage trade that emerged due to oil products stocks to offer supplies for oversupplies after the 2008 recession, “The IEA data has nuked sale, there is no guarantee that buyers the refined oil may simply be transferred will come forward. Wech predicted only the market. It makes one from one tank to another. around 350,000 bpd of the planned wonder how they’ll replace “People will just play the contango 500,000 bpd would be released this the stocks, seeing as they’ll with the barrels. The fact is there’s no summer . likely put half the European demand,” said a trader with a European In the case of Britain, for example, refiner. refining community out obligations backed by the IEA for But traders said owners of storage stockholders to keep enough supplies of business in the process,” may be punished by a steep contango for a minimum period will simply be said a distillates trader since they will be forced to buy back lowered, which may not result in an with a trading house their own oil at a higher price later to immediate sale of surplus volumes, replenish stocks. traders said. Another possible scenario is the stock Traders said the marketing and STORAGE PLAY release boosts exports, but traders pricing mechanisms for the sale, which Traders said that some savvy traders said arbitrage economics for diesel for are currently unclear, will be key in could benefit from the extra supply example are not currently profitable. determining the ultimate take-up. injection of distillates like diesel by “You have a notional amount of 60 exploiting a deeper contango in the ICE (Editing by Anthony Barker) Bernanke, Schapiro, Gensler and Walsh testify before the Senate Banking Committee hearing in Washington. REUTERS/Jonathan Ernst By Christopher Doering B illions of dollars in derivatives will be headed into legal limbo if U.S. regulators  dont create a short-term term bridging measure or simply opt not to enforce the rule; but without greater certainty, compliance officers oversight of the  $600-trillion global over-the-counter derivatives market. Facing a gap between the protection fix to the market chaos that could be face some sleepless nights. regime under the current commodities unleashed by missing a July financial "Im sitting here right now trying to act and the new rules from Dodd- reform deadline. figure out what I have to do to make Frank, market players are scratching The Commodity Futures Trading sure that my firm is in compliance on their heads and fearing a worst- Commission, in the midst of writing July 16. And I am struggling, big time. case scenario involving invalidated dozens of new rules, has said it will miss This is a real threat," said Gary DeWaal, contracts, dried-up liquidity, and an the July 16 deadline for implementing group general counsel for brokerage exodus to offshore trading. rules that give it oversight of the Newedge.    $600-trillion global over-the-counter    "We need to deal with this threat as LARGELY UNREGULATED derivatives market an industry immediately. We cannot The OTC derivatives market, which As a result, many of those contracts wait ... because we need to plan." includes commodity, interest-rate and may lose the legal protection afforded OTC trades soared in popularity after foreign exchange swaps, started in them by a clause in the Commodity swaps were given legal protection, the 1980s. In contrast to the futures Futures Modernization Act of 2000, allowing commercial parties looking to marketplace, it was largely unregulated which created a framework that offset their risk on interest rate shifts before last years Dodd-Frank law. stated they were not illegal off- or commodity price swings to enter It has been an opaque marketplace exchange futures. these deals without fear they would be dominated by a few dealers such as The impact of that legal void may be invalidated or considering gambling. Wall Street giants JPMorgan Chase limited if market participants believe     But the CFTC has said it will miss and Goldman Sachs. Some have said A BP logo is seen on a petrol station in London. REUTERS/Stefan Wermuth regulators will either set up a short- the deadline for most rules that give it OTC derivatives worsened the 200840 41

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