Fidessa's Steve Grob ponders the implications of the OTC clearing mandate.
An interesting few days in London last week at the annual
derivatives bash, IDX. Naturally much of the debate and
discussion was on the impending collision of the OTC and
exchange-traded worlds that Dodd-Frank and EMIR are determined
Unlike equities, the worlds of OTC and exchange-traded
derivatives have gone merrily down parallel, but separate,
tracks. The regulators (driven by their political masters) have
decided, however, that the best thing for the industry as a
whole is to move as many "dangerous" bilateral OTC contracts as
possible onto exchange-traded, or at least centrally cleared,
This was evident during the exchange leaders’
panel where the CEOs of the major derivatives exchanges were
enjoying the views from the moral high ground and basking in
the warm glow of the regulators’ approval.
Let’s hope they’re right, as the
finance industry really can’t afford any more bad
Two points in particular strike me. The first is that for some
large buy-sides that trade mainly with other large risk averse
institutions, a bilateral relationship is actually safer. They
know exactly who they are dealing with and don’t
have to worry about the creditworthiness of the other firms
their collateral might interact with on a CCP.
The second is that pretty much every exchange in Europe is
seeking to set up a clearing venue for OTC products and
engineer ways in which this can be used to offset margin
against exchange-traded products.
But what happens if we ever do actually have to pull the
clearing rip cord? Andreas Preuss (CEO Eurex) was asked if a
"living will" existed for Eurex Clearing. He confirmed that
yes, such a plan does exist showing that, in his mind at least,
he and his colleagues are prepared to think the
Let’s just hope the rest of us never have to read
Steve Grob is director of group strategy at
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