The post-trade has become more and more important o the future of the derivatives and securities industry.
Post-trade reform has been at
the heart of the policies stemming from the financial crisis,
with central clearing and trade
reporting widely accepted for the
vast majority of derivatives. For the
buy-side, back-office decisions are
largely influencing what goes on in
In addition for the first time ever,
collateral management has now
become regulated with the onset of
the variation and initial margin rules
for bilaterally traded derivatives.
However, there are a number of
challenges that could potentially
turn the post-trade world on its
Industry experts across the buy-and sell-side gathered together in
London to discuss these issues, and
how the industry can find efficiencies in the post-trade to mitigate
the costs and challenges.
No winners over Europe clearing
The future of the UK’s position
as a clearing hub for derivatives
has come into serious contention,
following the UK’s vote to leave the
European Union. With European
regulators poised to implement
stricter controls on UK CCPs clear-
ing euro-denominated derivatives,
the costs could be huge.
One of the main concerns European regulators have is for UK CCPs
clearing euro-denominated swaps
to access central bank liquidity,
given that the Bank of England does
not have access to euros.
The LSE’s CEO Xavier Rolet has
already highlighted the cost of
forcing the relocation of euro clearing from London to Europe could
amount to €100 billion.
To a large extent, panellists
agreed that the costs of forcibly
moving euro swaps clearing far
outweighed the benefits.
“Of all the euro swaps business
cleared, only 7% comes from
Europe. Would I – as a UK asset
manager – move my euros [clearing] to Europe? Not at the expense
of the cross-currency correlation
I get at the CCP,” said Ricky Maloney, business manager, rates and
absolute return desk, Old Mutual
Bill Stenning, managing director
for clearing, regulatory and strategic affairs at Societe Generale,
agreed by highlighting that of global swaps volumes, 28% of swaps
business is denominated in euros.
Of that, only a quarter is denominated with a European counterparty on one or both sides.
“If you only move pieces that are
covered by European counterparts
you’re probably only getting around
7% of the volume. So you would
trade in a smaller pool in amongst
the global market,” said Stenning.
With 90% of all swaps current-
ly cleared at London’s LCH, an
attempt to shift this to clearing
houses in Europe would just not
make sense for the buy-side, ac-
cording Barry Hadingham, head of
derivatives and counterparty risk
for Aviva Investors.
“The reason people go there
[LCH] is liquidity and unless that
moves there is no reason to go any-
where else. We need that liquidity
Speakers from BlackRock, Aviva and Old Mutual headlined a panel of industry
experts at The TRADE Derivatives future of post-trade event, where conversations
focused on the search for cost efficiencies in clearing, collateral and trade reporting.
“Of all the euro swaps business cleared, only
7% comes from Europe. Would I – as a UK asset
manager – move my euros [clearing] to Europe?”
- RICKY MALONEY, BUSINESS MANAGER, RATES AND ABSOLUTE
RETURN, OLD MUTUAL GLOBAL INVESTORS.