Data Management

10:30 AM
Steve Grob
Steve Grob
Commentary
50%
50%

The Attraction of OTC Clearing

Despite all the noise and hoopla, market participants seem to be huddled together at the top of the diving board waiting for someone else to take the plunge first.

Had an interesting week in the sunshine at the FIA annual conference at Boca Raton, Florida. Not surprisingly, the main topic was the move to bring the worlds of exchange traded and OTC derivatives together. This has been mandated by politicians and regulators on both sides of the Atlantic and will lead to the creation of a multitude of electronic platforms known as SEFs in the US and OTFs in Europe.

Or will it?

Despite all the noise and hoopla, market participants seem to be huddled together at the top of the diving board waiting for someone else to take the plunge first. Regulatory uncertainty is definitely one reason, but there is also a real sense that there will be far more of these things than the actual trading volume (as opposed to notional outstanding) will be able to support. Maybe a better option then is to be the guy offering the aggregation layer that allows traders to smartly scan the total liquidity across all the different platforms. By combining the available liquidity into a single virtual display, all sorts of further revenue generating opportunities start to become apparent, so maybe it’s a case of first mover disadvantage on this one.

But just as in equities, the real prize is in clearing and the ability to offer margin or position offsets between different but related instruments. The LSE's acquisition of LCH.Clearnet looks like a great move as it will enable it to leverage the mighty OTC SwapClear franchise. On the other hand, the mountains of ETD open interest held at EUREX Clearing, CME Clearing and others provide different starting points for portfolio margining.

The question then is: which will prove to be the strongest magnet?

Steve Grob blogs for Fidessa.

Comment  | 
Print  | 
More Insights
More Commentary
What Will the Financial Back Office of Tomorrow Look Like?
Asset managers are increasingly looking to automate their manual back office workflows. Confluence calls it the "back office revolution."
Bankrolling Technical Debt: A Financierís Guide
Technical debt represents the effort required to fix source code or application problems that put the business at risk.
Staying Ahead of the Game With Continuous Delivery
The need to develop better software faster is leading financial organizations to continuous delivery (CD), a practice pioneered by SaaS companies like Salesforce.
Shore Up Cyber Security Now
Knowing that a data breach can and will happen at some point, asset management firms can manage new operational and regulatory risk with a layered approach to cyber security.
Is Big Data a Problem or an Opportunity?
When it comes to data, financial services firms are, as a rule, quite circumspect. They fear cyberattacks, data theft, data loss, security breaches, data privacy, and human error.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - July 2014
In addition to regular audits, the SEC will start to scrutinize the cyber-security preparedness of market participants.
Video
5 Things to Look For Before Accepting Terms & Conditions
5 Things to Look For Before Accepting Terms & Conditions
Is your corporate data at risk? Before uploading sensitive information to cloud services be sure to review these terms.