Cognito Europe
- Post-trade processes most likely to be impacted by regulations
- Industry participants outline the key challenges and considerations for change
LONDON – 11th January 2012 – A unique snapshot of the new over-the-counter (OTC) derivatives landscape and the true impact of the impending regulations has been uncovered by a new research report conducted by GreySpark Partners, the capital markets consultancy.
GreySpark has been monitoring regulatory developments in Europe and the US and their expected impact from a buyside, sellside and third party vendor perspective. “OTC Derivative Clearing: Navigating the New Regulatory Landscape”, published today in conjunction with Best Execution, is the culmination of surveys and interviews with key industry participants over a period of three months. The report explains how the various regulations will impact these participants and paints a picture of how the new regulatory landscape will look.
GreySpark has looked at the regulatory picture in Europe and the US, focusing on the MiFID review, European Markets Infrastructure Regulation (EMIR), Basel III and the Dodd-Frank Act. The considerations that firms are looking to make while operating within these jurisdictions, focusing on the transformation of OTC derivatives to central clearing, are illustrated. GreySpark’s research arm – Capital Markets Intelligence – conducted surveys and interviews with hedge funds, brokers, dealers, corporates, asset management firms and technology vendors in pursuing this research.
The research has identified the key demands made by the impending regulations on the OTC derivatives environment:
Increased transparency
- Reduced systemic risk
- Changes to settlement processes
- Safeguards against firms “too big to fail”
Operations, risk, credit, control and compliance departments will see the most significant impact as changes to functionality, additional systems integration and overall architectural adjustments are necessary to reach the standards set by the regulations.
Additionally, the research shows that reducing operational risk is the key hurdle to becoming compliant under the new regulations. Owing to delayed details from the regulators, market participants are focussing on internal process optimisation while they wait for further clarity.
GreySpark has also given a clearer understanding of how the new regulatory landscape will look. The findings show that liquidity risk, counterparty risk and systemic risk will fall.
On the other hand, costs and barriers to market entry are expected to increase. The respondents have also projected that client valuations are expected to improve in the central clearing framework, with disputes widely anticipated to fall as a result. Across the board, collateral optimisation and data standardisation remain a significant priority for all involved.
Frederic Ponzo, Managing Partner, GreySpark Partners, said, “What the industry has been desperate for is a hint of how things will look. There are issues surrounding standardisation, data feeds, multiple platforms and processes that are expected to add overheads to the process. These are not a direct result of the legislation, more a hangover from the current bilateral process that firms have to take in order to be best prepared for the outcome of the legislation. This report gives firms a little more direction as we head into 2012.”
For further information on GreySpark’s research, please e-mail: press@greyspark.com
