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
Survey Shows an Urgency to Automate the Back Office
Confluence reports numbers are trending up across the board when discussing the need to automate back-office processes.
7 Pillars of Market Surveillance 2.0
Compliance officers are facing flash crashes, insider trading, market manipulation, and more. Here are seven market surveillance and risk management steps that will help compliance officers sleep better at night.
Stop, Rethink & Recalibrate: A View From Asia Pacific
Technology has made the human element of high- and low-touch trading almost indistinguishable. Brokers can no longer compete on price. Instead, they should build toward user experience and value of outcome.
The Sentient Enterprise: Data Driven as a Strategy, Not a Tactic
Can capital markets take a tip from front-to-back-office customer execution efficiencies and apply it to the investment process?
Dig Deeper for Data: Enriching Wealth Management With New Market Insight
To compete, wealth firms are providing direct electronic access to the content. Exposing the information to their clients is driving an evolution of the traditional advisor value proposition.
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8, October 2014
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
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.