Under Dodd Frank, SEFs could shift focus (and value) for large banks from execution to clearing


Risk.Net has a good article Derivatives users face tough choices on CCPs (click on the top google link for full story).

The article looks at some of the challenges faced by derivatives users under Dodd Frank SEF rules, and in particular the issues of legal segregation and portability of client collateral.

But, what caught my eye were estimates of the costs of clearing a single new cleared trade could be in the region of €150–450  – independent of all fees from the CCP.

The article goes on to say that under US regulations, the value proposition for major banks, could shift from providing execution expertise towards offering clearing ‘infrastructure’.

This is what happens in Futures, where although banks charge commission for ‘routing’ trades through to the exchange, the real value, in futures was always about winning clearing mandates and providing execution as a service on the back of clearing capabilities.

This echoes similar comments at AFME earlier this year from Jason Vitale, Head of FX Prime brokerage at Deutsche, where he postulated that whilst sales people will remain essential to clients, their role will change.

eTrading platforms will continue to deliver price discovery, and of course consistent pricing is still key for clients, but according to Jason Vitale, the role of the ‘best’ bank salespeople will become more akin to “Infrastructure Sales” delivering the full strategic capabilities of banks.

3 Responses

  1. […] As regular readers will know, we have been consistently stating the case that single dealer platforms are the logical conduit by which clients access swaps liquidity. Whether based on a risk pricing from a single bank (for non-cleared swaps, or for swaps of non-standard terms), or agency pricing (for cleared swaps), which will be (smart order) routed by the SDP to the SEF/dealer with the best price and terms (and link to clients preferred clearing house), and leverage the bank’s existing investment in clearing infrastructure. […]

  2. […] have noted before in our white paper on SDPs in a cleared world and also here and here, new regulatory mandates around execution, reporting and clearing will see the value […]

  3. Excellent site. Plenty of useful information here. I
    am sending it to a few friends ans also sharing in delicious.
    And certainly, thanks to your effort!

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