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Alternative Market Briefing

Financial reforms have little impact on corporate's use of interest-rate derivatives

Tuesday, June 17, 2014

Komfie Manalo, Opalesque Asia:

A study by Greenwich Associates found new regulations introduced through various financial reforms since the 2008 global financial crisis are having little to no impact on corporate use of, and dealer selection for, trading interest-rate derivatives.

The proposed G20 derivatives market reform measures were intended to reduce systemic risk in part by diluting big dealers’ share of the OTC derivatives markets. While the results of the Greenwich Associates research show some hints of movement in this direction by financial end-users, especially those in the United States, there is been no impact for global corporate treasurers.

Corporate users of interest-rate derivatives globally continue to concentrate over three-quarters of their business with their top three dealers and over 40% of that volume with a single primary dealer. This continues a pre-reform derivatives market trend for corporate end-users, who have concentrated 75–80% of their business with their top three dealers over the past eight years.

This is in large part because swaps clearing and trading mandates have yet to impact the corporate end-user community. This immunity to change will be short lived however. "A higher risk weighting for banks trades done bilaterally—even when the customer is exempted from clearing rules—will force banks to raise prices for corporate end user clients. " says Kevin McPartland Head o......................

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