Inaugural Clearing and Settlement Working Group meeting

Paul Blank and I spent yesterday afternoon in the comfortable surroundings of the BT Centre auditorium in Newgate Street at the inaugural meeting of the Clearing and Settlement Working Group (CAS-WG).

Conceived by Chris Skinner of the Financial Services Club, Chris Pickles of BT and the directors of the Realization Group, this is an attempt to start something similar to the successful MiFID joint working group but for clearing and settlement. We went along, not because we thought we had anything to contribute, but believing we could learn something about what happens after someone clicks a “buy” or “sell” button on one of our clients’ single-dealer platforms.

UPDATE: A detailed write-up of the meeting, with photographs, is now available on the Financial Services Club blog.

Dealing with the regulatory fire-hose Continue reading

AFME European Market Liquidity Conference – observations on today’s conference

Today’s AFME, European Market Liquidity Conference was very well attended, with a great program – each item could have done with its own full day session. Below are quick notes I jotted down during some of the sessions, although clearly I don’t do justice to the quality of debate at the conference.

There was a good mix of attendees, participants and panellists, across the spectrum covering buy & sell side firms, central bankers, regulators, clearers, policy makers and vendors. Views expressed were personal ones (ie no policy statements from the ECB – although Francesco Papadia wasn’t shy in promoting his book!).

So, what themes emerged:

Continue reading

Clearing Models in a SEF world

Kevin McPartland of the Tabb Group hosted a Fixed Income event last Tuesday in New York. According to our sources, the event was hugely oversubscribed – not surprising given Tabb Group & Kevin’s focus and insight on Dodd-FrankĀ  and itss intended and unintended consequences.

According to Wall St & Technology, one of the areas of discussion was understanding how clearing will function so that execution risk is mitigated. In short, if a trade is done through a SEF, that trade is not complete until the clearer has accepted it. Which means that the counterparties (or their clearing agent/FCM) are still at risk until the acceptance has happened. Hence the focus on how that risk can be mitigated.

The proposals fall into two groups: Continue reading

Celent on SEFs and OTFs & SDPs

Celent hosted an interesting WebEx yesterday on Dodd-Frank and EMIR Regulation, Derivatives Reforms and IT Impact.

They presented a risk analysis based on three potential scenarios that could develop, depending on how the final SEF and OTF rules fall out.

Amongst the key characteristics of the market structure they see developing include:

  • Two tier model for SEFs with separation between an interdealer and dealer-to-client SEFs
  • Single Dealer Platforms qualifying as OTFs/SEFs (due to loose definitions)

My view:

I certainly agree that SDPs can qualifying as OTFs, although according to an item in today’s FT, German and French regulators are questioning the need for OTFs .

However, I can’t see how Celent could imagine (under any scenario) that SDPs could also qualify as SEFs, as the 25% ownership limitation for SEFs would by definition preclude bank SDPs from becoming SEFs. Our view is that SDPs will become a major channel through which clients access SEF liquidity, through the use of SEF aggregation.

Below is one of the more interesting slides, which looks at possible market structures. Celent’s view is that scenario 2 is the most likely outcome.

Celent state that:

In a new report, Swap Execution Facilities and Organised Trading Facilities: A New Market Structure Emerges, Celent offers key insights into the likely future direction of SEF/OTF markets and critical factors setting this direction. Based on these insights, Celent believes that there are multiple scenarios for the market structure to reach the SEF/OTF future state. However, because of fragile liquidity, industry feedback, and cautious regulators, a dominant scenario emerges as the most likely outcome.

Celent report here

Will Rhode on the TABB Forum: Can Single Dealer Platforms Become Organized Trading Facilities? (login in required for free membership to the TABB Forum).

Will Rhodes questions whether single-dealer platforms will qualify as OTF’s under the latest draft of MiFID regulation because of the ambiguity surrounding the actual wording of the latest draft. The principal difference between SEF’s and OTF’s is that SEF’s must not be dealer-owned, while European legistlators have not (until now?) included this limitation in the definition of an OTF.

Rhodes looks at the workd on the draft reform and asks some compelling questions about the definition of OTFs. Read the full article here.