Thomson Reuters has set a mid-2012 deadline to get its trading platforms ready for forthcoming OTC derivatives regulations, as it releases research which shows clear bank unease at the uncertain impact of the new rules on front and back office operations.
Thomson Reuters says it intends to ensure all of its trading platforms are registered as regulated trading venues in all relevant jurisdictions, whether as a swap execution facility (SEF), multilateral trading facility (MTF), or organised trading facility (OTF).
Jas Singh, global head of treasury, Thomson Reuters, says: "We are now setting out a clear timeline for our own regulatory-compliance activities that will enable our customers to plan for the forthcoming regulatory changes. At a time of regulatory uncertainty we feel it is important to take a lead and help our customers navigate the maze."
In preparing to gets its own house in order, Thomson Reuters conducted face-to-face interviews with senior managers at major dealing shops. The implications of the regulations on capital requirements, workflow, the cost to trade, and liquidity for single-bank platforms were highlighted by banks as unknown outcomes of most concern resulting from the proposed shake-up.
Clearing emerges as banks' most immediate focus as the details around workflow and its impact on pricing are still unclear. Within the trading workflow the bank must now consider whether the instrument needs to be cleared, what clearing information is required, how to manage the routing of trades to central counterparty clearing houses (CCPs) and trade data repositories and what requirements for reporting will be for the repository and to the market.
The research also revealed a general acceptance from banks that liquidity will shift from single bank portals to newly regulated SEFs, MTFs and OTFs. The key challenges seen here by respondents are how banks will differentiate themselves to customers and how buy-side firms will connect to multiple venues available.
"Our research found that the banks greatly vary in their levels of preparation for the implementation of regulatory changes," says Singh. "The smaller, non-USA domiciled banks have generally adopted a 'wait and see' approach to regulation whereas the majority of larger banks are proactively lobbying, planning, prioritising and building the necessary capabilities.
He says Thomson Reuters has committed to creating an integrated suite of regulatory compliance services, comprising the conversational Thomson Reuters Dealing platform, the multi-bank Trading for Exchange portal, and post-trade notification, matching and confirmation services.
Says Singh: "We will be delivering enhancements to our products that not only help our customers address the new regulatory environment but also greatly improve their efficiency and workflow."
Workflow effectiveness and integration were seen as the key to success for new SEFs and MTFs by the majority of banks interviewed. How vendor and client systems, processes and data work together across the workflow from pre-trade, to trade and post trade will determine the popularity of different venues according to the banks.