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Buy-side looking to go it alone 

January 6, 2016

Dan Barnes, The Trade

Direct buy-side membership of a clearing house is not risk-free itself; new models of direct membership are being explored to shake off fears about clearing brokers.

At the Futures Industry Association’s annual London event in June 2015, Mark Woodward, vice president for corporate development at clearing house ICE Clear Europe said, “We are seeing increased interest in direct clearing [from buy-side firms] as a consequence of [brokers’] increased costs and capital charges.”

With mandatory clearing of over-the-counter (OTC) derivatives trades expected to begin under the European Market Infrastructure Regulation (EMIR) in April 2016, getting clearing arrangements addressed should be a top priority for asset managers.

Several European central counterparties (CCPs) are said to be weighing up a form of sponsored direct access to buy-side members, in order to work around capital and default fund rules. This type of model, already offered by ICE Clear Europe as a ‘Sponsored Principal’ account, allows the client to become a direct counterparty to the clearing house with separate position, margin and asset accounts. The direct posting of collateral with the CCP would prevent it being counted on the clearing broker’s book, and therefore being subject to a capital charge under the Basel III rules. Read more

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