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Banks seek OTC clearing lifeline 

May 21, 2015

Mike Kentz, Reuters

Banks providing over-the-counter derivatives clearing services to their clients are seeking innovative ways to keep those businesses alive as crippling capital and leverage requirements sap limited returns.

As a last-ditch effort to make the economics work, some houses are mulling deals with credit investment funds that would see the third-party entities take the responsibility of guarantor for swaps clients passing trades through clearing houses.

The replacement-guarantor set-up would theoretically relieve the bank from onerous supplementary leverage ratio requirements that treat client margin held by FCMs at the clearing house as a levered asset. Market participants have pushed back against the proposal and Basel regulators are understood to be close to making changes (see this section), but in the absence of any confirmation, alternative solutions are under consideration.

Read more: Reuters

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