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Credit Crisis Has Meant a Dramatic Shift in Derivatives Clearing, Says Sophis

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The credit crisis has resulted in a dramatic shift from OTC to exchange cleared platforms for derivatives, according to the results of Sophis’ recent survey. The Derivatives Trading Outlook Survey for 2009, which included responses from chief risk officers, heads of derivatives trading, and chief investment officers, indicates that 50% of respondents will be moving at least half of their credit default swap (CDS) trades to the new exchange cleared platforms for these instruments.

Moreover, 73% of respondents said that next generation clearing houses for CDSs are absolutely necessary to improve credit trading. This is great news for the four main contenders to the CDS clearing counterparty (CCP) throne, which will be facing off against each other to attain the highest volumes of CDSs over the next 12 months at least.

Eric Bernstein, chief operating officer at Sophis, makes the rather obvious statement that change is afoot in the derivatives market. “With the leading practitioners in our field asserting that derivatives historically traded OTC will find a home on an exchange, and that more transparency and improved trade processing are a necessity, we are sure to see strong ripple effects in the technology space,” he says.

Although Bernstein doesn’t elaborate on what these changes may involve, it is pretty certain that 2009 will witness some degree of vendor consolidation. It will be every vendor for themselves as the competition heats up.

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