Regulation Will Wreak Havoc On Shadowy NDFs

Reuters – By Vidya Ranganathan and Rachel Armstrong – June 7, 2012

Reuters/Brendan McDermid

(Reuters) – It has been the dark side of currency markets: a secretive multi-billion dollar world of simulated contracts that skirts around government controls and rules.

Now regulators are about to force this global market in non-deliverable forwards (NDFs) out of the shadows with rules on trading and central clearing that brokers fear will cause the market — and their industry — to shrivel.

Almost every financial centre from Hong Kong to New York is set for new rules which will force trades in NDFs to go through a central clearing house, and data on these transactions to be reported.

The U.S. Dodd-Frank legislation goes further and requires derivatives to be traded electronically, and bans banks from proprietary trading in any product, including NDFs.

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