Buyside confused over OTC regulation


Interesting article by Phil Davis in the FT today (registration required) about asset managers being required by Dodd-Frank to clear trades through a central counterparty. The article quotes David Field of Rule Financial. Rule have apparently conducted a buy-side survey which confirms several of the consensus opinions of the Clearing and Settlement Working Group (CAS-WG) (which I blogged about last week).

Field said:

The buyside is very confused about the timelines. We conducted a survey on this and answers ranged from September 2012 to December 2014. One even said December 2015.

The article concludes that the buy side is unaware of the timeline and is also unprepared for having to post collateral on deals for the first time.

Interesting read.

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

Single-Dealer Platforms grow in importance


It is interesting that, following Paul Blank’s post on May 29th suggesting that single-dealer platforms are fighting back against SEFs, the audience at yesterday’s Waters webcast seemed to agree.

Yesterday (June 7 2011) Waters hosted an audio webcast entitled, “Regulation and OTC e-Commerce: Future-proofing your systems”. Sponsored by Caplin Systems, and hosted by Rob Daly, editor of Waters’ publication Sell-Side Technology, the panel for the webcast included Stéphane Malrait of Société Generale, David Bullen of Citi and Nick Green of Crédit Agricole.

The first audience participation question was, “Do you see a direct electronic channel to market being 1) more or 2) less important in this new regulatory environment?”

82% of the audience decided that in the new regulatory environment a direct electronic channel to market will be MORE important than it is now.

This is clearly good news for those of us engaged in building electronic channels to market for broker/dealers.

For those who missed it, an on-demand recording of the full audio webcast will be available online in a week or so. As soon as it’s available I’ll post the link.

ISDA release paper on the Economics of Central Clearing (by the Streetwise Professor)


ISDA has just released a discussion paper called “The Economics of Central Clearing: Theory and Practice“, written by the Streetwise Professor

I have a lot of time for the prof, so I am sure the paper will be worth the read!

The paper points out both the benefits and potential issues related to central counterparty clearing facilities (CCPs). Several of its more important conclusions include:

  • CCPs can successfully reduce and reallocate counterparty risk through rigorous preparation for, and management of, member defaults;
  • CCPs can also create systemic risk, and it is imperative they have strong and conservative risk management and sufficient financial resources to withstand stressed markets. They also require close supervision by regulators;
  • The margin policies of CCPs can pose risks to the efficient functioning of the financial system. Mandatory clearing of OTC derivatives will lead to a large amount of liquidity being tied up as margin at CCPs. Increases in margin requirements by CCPs during a crisis could be destabilizing;
  • CCPs should generally align control, governance and membership requirements with the interests of participants that absorb their risks and share their losses.

CCP Clearing for OTC Derivatives – white paper from Cognizant


An informative white paper from Cognizant on the impact of CCP on OTC Derivatives markets. Great workflows for the trade routing to CCP shown on page 6.

Dodd-Frank: Where have we got to so far?


As part of our review & assessment of Dodd-Frank, I thought it would be useful to summarise progress to date & try to draw some conclusions about the speed & direction of the implementation.
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FX Clearing continues to be discussed (by academics!)


Bloomberg ran an article of a phone interview with Darrell Duffie, Stanford University Professor of Finance, who suggested that the risk of investor default in FX swaps and Forwards was large enough to justify post trade clearing through clearinghouses.

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