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Alternative Market Briefing

State Street takes the pulse of buy-side firms mandated to clear OTC Derivatives

Wednesday, July 31, 2013

Bailey McCann, Opalesque New York:

Buy-side firms are unprepared for new trading mechanisms, costs and increased complexity in the OTC market according to new research commissioned by State Street Corporation. The findings show that buy-side firms may need to work more proactively with providers meet challenges imposed by regulatory changes. The paper – "From Readiness to Revolution: The Implementation and Impact of Derivatives Clearing Regulatory Reform," explains how firms will have to prepare for swap execution facilities (SEFs), central clearing, collateral management and reporting.

State Street already serves as a futures clearing merchant (FCM) and a SEF. The paper highlights developments across the entire trade life-cycle and includes a roadmap to readiness for Category III firms – those firms that have yet to complete the Commodity Futures Trading Commission’s (CFTC) phased implementation of Derivatives clearing.

Changes in the OTC Derivatives requirements have created three types of firms – Categories I, II and III. Category I firms are companies that have completed the transition to mandated clearing. According to the paper, firms that meet this criteria and acted early have had the opportunity to negotiate more advantageous FCM agreements.

Category II firms have also met those requirements but because they were slower to act, found FCMs less willing to negotiate on terms. Category III fi......................

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