SIX: survey on uncollateralized OTC derivative transactions

Industry wide European research from SIX Securities Services today reveals the statistic that more than 8 in 10 (85%) financial institutions believe that up to 40% of all OTC derivative transactions are not collateralized. In fact, 14% would go as far as to say between 40 and 60% of these kinds of transactions are completely uncollateralized.

Respondents were also asked their views on whether this could change before 2019. Three-quarters of respondents (75%) believe that 60-100% of all OTC derivative transactions will become collateralized within the next two years, but just 23% of all respondents think that 80% and above will be covered with collateral by then.

Over the past few years, the European Market Infrastructure Regulation (EMIR) has introduced a set of obligations for financial market participants to centrally clear certain classes of OTC derivative contracts through CCPs and apply new risk mitigation measures. The reform is set to be implemented by September 2020.

These results come as no surprise as the OTC derivative markets are currently subject to significant change. However, it’s expected that even after all reform elements are implemented, some portion of the OTC derivatives market (especially non-standardized derivatives such as commodities) will remain non-centrally cleared.

Further results of the research reinforce the need for a greater mobilization of marketable collateral. 42% of respondents state that it is acceptable for collateral to be low quality, complex, and opaque, as long as it is cheap. Compared to SIX Securities Services last Collateral research, the number of financial institutions that are willing to accept collateral simply because it is cheap has increased by over 10%.

The study surveyed 60 professionals in the UK, Germany, France, the Nordics and Switzerland. 30 respondents were IT decision makers and 30 collateral experts from buy-side and sell-side financial services institutions.  The number of respondents from buy-side and sell-side organizations was evenly split with 30 respondents from each. The average value of respondents’ organizations’ assets under management is $323 billion.

Read the full release

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