Large OTC Derivatives End-Users on Clearing and Collateral: A Finadium Survey
Finadium
July 2013
The market for OTC derivatives clearing and collateral management services is beginning to take shape. With mandatory clearing for US end-users launched on June 10, 2013, and many large European end-users already clearing on CCPs, asset managers, insurance companies and non-clearing banks have gotten into the details of selecting two or more derivative clearing members (DCMs). They are also building up their technology and staffing to handle new OTC derivatives trading and settlement processes.
The next big challenge is collateral, including collateral management, optimization and where collateral is held. While clearing mandates must be met by law, the urgency of collateral management is felt more gradually as underlying investors and portfolio managers begin to see direct cost impacts to their returns. Alongside financial requirements, large end-users are beginning to wonder if they have enough collateral internally or if they must source collateral from the market. If investors need outside collateral, will standby credit facilities be enough, will they need to purchase collateral-eligible assets or engage in collateral transformation trades? And who will manage these processes?
In this report, Finadium presents the results of a new survey of large end-users in the OTC derivatives clearing and collateral market. The survey reveals the major considerations that end-users have faced in selecting clearing agents, how they approach collateral optimization and the challenges, particularly to business profitability, that they face in the short to medium-term.
The results of the survey will help large OTC derivatives end-users, their clearing agents, collateral service providers and technology firms enhance their capabilities to manage the ongoing development of mandatory OTC derivatives clearing and collateral management.
This report is 29 pages with 15 exhibits.
This report is available at no charge courtesy of Calypso.
TABLE OF CONTENTS
■ Executive Summary
■ Meeting the Regulatory Challenge in 2013
– Methodology
■ Relations with Derivatives Clearing Members
– CCP and Clearing Member Scarcity
– The Utility of Portfolio Margining
■ Prioritizing Collateral Optimization
– Securities Lending, Repo and Transfer Pricing
■ Current Challenges
– The Profitability Question
■ Technology and Staffing
– Thoughts on Outsourcing
■ The Next Big Decisions for Large End-Users
■ About the Author
■ About Finadium