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Will Rhode Bailey McCann, Opalesque, New York: Investors and firms are entering the era of transparent, cleared swaps. However, some firms are threatening to stop using swaps as fees have risen to cover the costs of clearing these activities. The capital requirements for using swaps may also be difficult for these firms to maintain, according to a new report from Tabb Group.

The industry will need $1.6tn to comply with new rules, requiring that margin to be deposited with central clearing counterparties (CCP). As firms start to do the math on finding this capital and still more to cover fees, many are finding it hard to justify the cost of swaps. Dealer fees have also increased as dealers sense a new market share opportunity.

"With a dip in liquidity a near certainty, waiting to see who blinks first is never comfortable," says Will Rhode, a TABB principal, director of fixed income research and author of "US Buy-Side Swaps Trading 2012: I Can See Clearing Now," the research firms first annual study on buy-side swaps. "Everyone knows clearings coming but theres been little movement, even as the deadlines bear down. These are high-stakes games."

Report data shows that many firms are taking a wait and see approach to implementation. "Futures will be a beneficiary, and the buy-side will have to learn how to handle basis risk. The mor......................

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