Our privacy policy describes how Fidessa uses cookies on our website. If you continue using our website, you are consenting to our use of cookies. OK

Clearly better?

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 to orchestrate. 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, platforms.

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 publicity. 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 unthinkable. Let’s just hope the rest of us never have to read it.

Comments
One Response to “Clearly better?”
  1. David White says:

    I concur with the sentiments, one only has to look at the notional value of bilateral trades to see there is probably not enough capital in the system to implement a total CCP regime, or that the use of such capital through a CCP will be efficient.
    Just look at how Berkshire structured its famous notional $38bn long term puts over world equity indexes, these trades may not have been possible under a CCP structure and as you note the counter-parties could have see less risk in them ex-CCP.

Leave a comment

Copyright © 2017 Fidessa group plc. All rights reserved.

The information contained within this website is provided for informational purposes only. Fidessa will use reasonable care to ensure that information is accurate at the time it is made available, and for the duration that it remains on the site. The information may be changed by Fidessa at any time without notice. We also reserve the right to close the website at any time. No representation or warranty, expressed or implied, is given on behalf of Fidessa or any of its respective directors, employees, agents, or advisers as to the accuracy or completeness of the information or opinions contained herein or its suitability for any purpose and, save in the case of fraud, all liability for direct, indirect, special, consequential or other loss or damages of whatever kind that may arise from use of the website is hereby excluded to the fullest extent permitted by law. Any decisions you make based on the information in this website are your sole responsibility and information on the website should not be relied upon in connection with any investment decision.

The copyright of this website belongs to Fidessa. All other intellectual property rights are reserved.

Fragulator® is a registered trademark of Fidessa group plc.

Reproduction or redistribution of this information is prohibited except with written permission from Fidessa.