Home Is Where the Hearth Is

Indeed, the issue of identity is a dispersed one in the modern age, particularly among my generation Y, and probably even more so with Z and on. The internet, that great enabler, has been a catalyst for breaking down national identity and geographical borders. The same has historically been true for the capital markets, allowing firms to extend a global reach through market connectivity, access and electronic trading, giving five people in a shoebox office somewhere in London the chance to trade New York, Euronext markets and Asia-Pacific.

Under Pressure
Modern regulatory efforts, though, are keen to move back to scenario where firms are delineated according to nationality. Or, if you will, cut through where they happen to be to determine where ‘home' is for them. This becomes particularly important with Dodd-Frank Act rules on reporting for derivatives, what constitutes a US person, and when de minimis exceptions are breached, to name a few areas.

The result is a technology issue, of course, not just through identifiers, but as one specialist from Citi told me the other day, "identifiers on identifiers". On an essential level, this is basic know your customer, right? Where is that legal entity based, and as such, which regulatory jurisdiction do they fall under? Following that on, what are my reporting obligations, and to whom?

It sounds simple enough, but as with most things in this space, it's not. You might reasonably assume a Citi counterparty, being one of the major US banks, would be a US counterparty. But the trade went through their office in Japan, you're in Singapore, and you executed a swap transaction bilaterally, over the phone, backed up by ISDA agreements. Not applicable in terms of Dodd-Frank, right? Maybe not.

It's an interesting, but thoroughly complicated area, and one which will take center stage next year as many of these regulatory mandates become concrete and engaged.

You might reasonably assume a Citi counterparty, being one of the major US banks, would be a US counterparty. But the trade went through their office in Japan, you're in Singapore, and you executed a swap transaction bilaterally, over the phone, backed up by ISDA agreements. Not applicable in terms of Dodd-Frank, right? Maybe not.

New Year
As this will be the last Editor's Letter of 2013, I'd like to take the chance to wish you all a merry Christmas, and I hope that you all have a happy New Year, too. Thanks for your continued support of the magazine and our events.