05 December 2016
Visit aciworldwide.com

Centralised clearing for OTC derivatives receives industry support but concerns remain

04 February 2010  |  9224 views  |  0 Digital Abstarct

The majority of financial institutions and corporations around the world agree that moving OTC derivatives trading to a system of centralised clearing would help manage risk but many market participants still harbour serious concerns about the prospect, according to a survey from Greenwich Associates.

Respondents to the survey broadly agree that centralised clearing would be an effective means of managing both counterparty risk at an individual level and market-wide systemic issues.

Around 80% of the 330 survey participants cite counterparty risk mitigation as the primary benefit of centralised clearing, a share that approaches 90% among financials. At a broader level, over half believe a move to centralised clearing would be effective at mitigating systemic risk. The case is most pressing for credit default swaps, say respondents.

However, many raise concerns about the ongoing process of market structure reform and are uncertain about details of the proposals currently being considered. A surprisingly high 47% of respondents say they are either entirely in the dark about centralised clearing plans or less knowledgeable than they would like to be about the details of the proposals.

While there is near unanimity on the risk benefits of OTC centralised clearing, concerns have been raised about its impact on trading volumes. Overall, 42% of respondents do not think the shift would have any effect on the notional trading volumes they execute, while 44% of financial institutions think volumes will increase.

Another potential concern is cost, with half of those questioned predicting that a move to centralised clearing will lead to tighter bid/ask spreads on OTC derivatives. Overall, 47% of survey respondents cite the potential for increased transaction costs on OTC derivatives trades as a significant drawback of centralised clearing and 70% see the potential for increased costs associated with margin requirements as an important negative consequence.

"In general, corporations participating in the study believe costs associated with creating and maintaining the centralised clearing system will ultimately be passed on to customers," says Andrew Awad, consultant, Greenwich Associates.

In addition, approximately three quarters of corporations fear the newly enforced standardisation of contracts required by a shift to centralised clearing will limit flexibility, creating mismatches in positions and disqualifying some trades from hedge accounting.

Finally, when asked which organisations should run central clearinghouses for OTC derivatives, respondents in continental Europe favour Eurex. UK companies and financials prefer LCH.Clearnet, with Eurex and ICE also receiving votes. The preferred provider of North American firms is CME Group.

Earlier this week, global banking and securities regulators revealed they were fast-tracking a review of clearing arrangements for OTC derivatives as part of a far-reaching re-appraisal of existing standards for payments, clearing and settlement systems.

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

Regulators fast-track global review of OTC derivatives clearing

Regulators fast-track global review of OTC derivatives clearing

02 February 2010  |  8264 views  |  0 comments
CME Group launches CDS clearing

CME Group launches CDS clearing

16 December 2009  |  6001 views  |  0 comments
BME to take on DTCC with trade repository plan

BME to take on DTCC with trade repository plan

03 November 2009  |  5835 views  |  0 comments
DTCC calls on lawmakers to mandate use of central trade reporting utility

DTCC calls on lawmakers to mandate use of central trade reporting utility

09 October 2009  |  6523 views  |  0 comments
Dealers to accelerate central clearing of OTC trades

Dealers to accelerate central clearing of OTC trades

09 September 2009  |  8532 views  |  0 comments
Nyse Liffe shelves CDS clearing

Nyse Liffe shelves CDS clearing

13 August 2009  |  7953 views  |  0 comments
OTC derivatives gain standards based on FpML

OTC derivatives gain standards based on FpML

29 July 2009  |  6758 views  |  0 comments
ICE Trust sets out plans for buy-side participation in CDS clearing

ICE Trust sets out plans for buy-side participation in CDS clearing

23 July 2009  |  5336 views  |  0 comments
Japan to build CCP for OTC derivatives trading

Japan to build CCP for OTC derivatives trading

22 May 2009  |  8176 views  |  0 comments
CDS clearing plans badly flawed say researchers

CDS clearing plans badly flawed say researchers

22 April 2009  |  11334 views  |  0 comments
Eurex outlines CDS clearing proposal

Eurex outlines CDS clearing proposal

13 October 2008  |  10474 views  |  0 comments
Eurex ventures into OTC derivatives clearing

Eurex ventures into OTC derivatives clearing

23 July 2008  |  7401 views  |  0 comments
Liffe eyes over-the-counter CDS market

Liffe eyes over-the-counter CDS market

07 July 2008  |  9688 views  |  0 comments
Credit derivatives clearing facility to launch in Q3

Credit derivatives clearing facility to launch in Q3

29 May 2008  |  8191 views  |  0 comments

Related company news

 

Related blogs

Create a blog about this story (membership required)
Find out moreVisit contisgroup.comhttp://www.financialcrimerisk.fiserv.com/aml?r=finextra

Who is commenting?

A Finextra member Finextra Member Commented on: Guesswork alone can cr...
A Finextra member Finextra Member Commented on: Guesswork alone can cr...
A Finextra member Finextra Member Commented on: Guesswork alone can cr...

Top topics

Most viewed Most shared
Royal Mint to issue digital goldRoyal Mint to issue digital gold
6877 views comments | 23 tweets | 24 linkedin
Bank CEOs fret about ROI as startups drive IT arms raceBank CEOs fret about ROI as startups drive...
5987 views comments | 16 tweets | 21 linkedin
hands typing furiouslyBanking UX Design Challenges and Opportuni...
5840 views 0 | 12 tweets | 4 linkedin
Amazon signs up tech firms to financial services cloud programmeAmazon signs up tech firms to financial se...
5826 views comments | 14 tweets | 15 linkedin
R3 and Calypso to develop blockchain trade confirmation systemR3 and Calypso to develop blockchain trade...
5721 views comments | 13 tweets | 13 linkedin

Featured job

to Six-Figure Base, Commission, Benefits
London, UK

Find your next job