Citadel applauds derivatives reform

Interesting (although not unsurprising) front page article in FT today.

Ken Griffin, founder of Citadel one of the largest hedge funds speaks about the benefits of the new regulations, citing…,

Derivatives trading has improved dramatically, becoming safer and more efficient… and power has shifted from bank “dealers” to investors.

“Dealers spoke about fire and brimstone, that markets would cease to work, products would become illiquid, costs would go up dramatically, clients would endure adverse consequences”

He said that, in reality:

“Spreads had narrowed, there was a material reduction in counterparty credit risk, and dramatic reduction in operational risk”

From my perspective as a client, this brave new world of Dodd-Frank for ‘cleared’ derivatives has been fantastic. Fantastic”

Personal comment: Perhaps for the very large firms like Citadel, who are already set-up for posting margin this may well be the case. But for small firms who for the first time are having to put in place facilities to pledge collateral for initial and variation margin, the changes needed will have been large. And of course for the banks themselves, the cost and effort required to prepare for the new regulatory environment has been enormous.

Full article here:

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