The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Citi Whitepaper Outlines the Top Five Issues OTC Derivative Investors Must Plan for in the Wake of Dodd-Frank Reforms

Citi announced today that it has released a new whitepaper that outlines the top five issues that OTC Derivative investors must plan for in the wake of Dodd-Frank reforms. “Ready or Not? Here It Comes: OTC Derivatives in the Post-Dodd-Frank Landscape – Implications for Investment Managers,” describes the challenges facing investment managers across operations and technology infrastructure. Citi estimates that about 60% of the current OTC derivatives market by volume will be centrally cleared.

“Investment managers should expect significant technology and operational challenges and may need sizeable reengineering of their infrastructure to prepare for central clearing, oversight and reporting, and increased reconciliations,” said, Neeraj Sahai, Global Head, Securities and Fund Services, Citi.

The paper highlights that institutions will be subject to mandated central clearing of most OTC derivatives, higher margin requirements for non-cleared swaps, increased margin and collateral complexity, and increased reporting requirements.

It points out that although some final rules have not been issued, firms with substantial swap positions, major uncollateralized exposure, or that are highly leveraged will likely be required to register as either Swap Dealers or Major Swap Participants Registration. This would subject them to a number of new requirements, including: capital and margin requirements; reporting and recordkeeping requirements; position limits and business conduct requirements.

In this new environment the authors believe that investors should consider taking the following actions

* Determine the regulatory classification of their organization,

seeking counsel if necessary on issues such as potential registration requirements, categorization of the organization as a Major Swap Participant or qualification for an end-user exemption.

* Put clearing relationships in place, appointing a Clearing Member

Firm for clearance of clearing eligible trades (more than one is suggested).

* Establish trade connectivity, by connecting to multiple trade

affirmation/trade capture platforms, Swap Execution Facilities (SEFs) and trade repositories if they trade in clearing-eligible products.

* Ensure that internal operations and technology staff can meet the

new reporting and reconciliation guidelines. Internal staff, or an outsourced middle-office provider, must also be able to bifurcate portfolios into clearing-eligible and clearing-ineligible buckets and to track and administer the increased margin requirements.

* Assess the impact of central clearing on margin and collateral

levels and eligibility and consider the potential impact of margin and collateral increases on portfolio management.

“Citi recognizes that the mandatory central clearing of standard OTC derivatives per Dodd-Frank may present a number of new challenges to our clients. Citi’s Global Derivatives Clearing platform and Securities and Fund Service offering provides our clients with a comprehensive front to back, streamlined solution.” said Nick Roe, Global Head Citi Prime Finance.

“Ready or Not? Here It Comes: OTC Derivatives in the Post-Dodd-Frank Landscape – Implications for Investment Managers” is available at Click Here to Download Citi provides both market intelligence and processing capabilities through a complete suite of solutions integrated across the entire investment value chain. For every strategy, and every asset class (equities, fixed income, foreign exchange and futures), Citi leverages local and global strengths in execution, leadership in prime finance, comprehensive custody and fund administration and other fund services, and clearing services, to deliver what the market and our clients demand.

Related content

WEBINAR

Recorded Webinar: Maximising success when migrating big data and analytics to cloud

Migrating big data and analytics workflows to the cloud promises significant cost savings through efficient use of infrastructure resources and software that scales dynamically based on data volume, query load, or both. These are valuable gains for investment banks, but they can only be fully realised by taking a new approach to architecture and software...

BLOG

China Merchants Bank Selects Appway for Onboarding and KYC Compliance Checks

China Merchants Bank – Singapore branch (CMB SG) has selected Appway to provide client lifecycle management solutions and domain expertise to accelerate the branch’s compliance agility and efficiencies. Appway’s Singapore office will lead the implementation of its Onboarding for Wealth and KYC Review solutions, as well as its Digital Binder product for front to back...

EVENT

TradingTech Summit Virtual

TradingTech Summit (TTS) Virtual will look at how trading technology operations can capitalise on recent disruption and leverage technology to find efficiencies in the new normal environment. The crisis has highlighted that the future is digital and cloud based, and the ability to innovate faster and at scale has become critical. As we move into recovery and ‘business as usual’, what changes and technology innovations should the industry adopt to simplify operations and to support speed, agility and flexibility in trading operations.

GUIDE

Entity Data Management Handbook – Seventh Edition

Sourcing entity data and ensuring efficient and effective entity data management is a challenge for many financial institutions as volumes of data rise, more regulations require entity data in reporting, and the fight again financial crime is escalated by bad actors using increasingly sophisticated techniques to attack processes and systems. That said, based on best...