The uncertainty surrounding upcoming over-the-counter (OTC) derivatives regulation is prompting concern amongst banks in four key areas, according to a recent survey by Thomson Reuters. The implications of the regulations on capital requirements, workflow, the cost to trade and liquidity for single-bank platforms were highlighted by banks as unknown outcomes of most concern resulting from the proposed shake-up.
Thomson Reuters has revealed findings of the research amongst major bank customers while setting out a clear timeline for its own regulatory-compliance activities. The Company intends to ensure all of its trading platforms are registered as regulated trading venues in all relevant jurisdictions, including, as may be necessary, registering as a swap execution facility (SEF), multilateral trading facility (MTF), or organized trading facility (OTF). This move will enable sell and buy-side users to trade confidently with partners on a global basis using Thomson Reuters systems to automatically ensure compliance with all relevant regional and instrument-specific regulations.
The research, which was undertaken in March and April this year, involved face-to-face qualitative interviews with senior managers in leading global financial institutions to discuss the impact of upcoming OTC derivatives regulation. The survey covered senior positions with job titles ranging from head of desk to head of operations, post-trade and compliance to strategy and business managers.
According to the Thomson Reuters survey, clearing emerges as banks’ primary focus today as the details around workflow are still unclear and clearing is intrinsically linked to the pricing of instruments. Within the trading workflow the bank must now consider whether the instrument needs to be cleared, what clearing information is required, how to effectively and efficiently manage the routing of trades to central counterparty clearing houses (CCPs) and trade data repositories and what requirements for reporting will be for the repository and to the market.
The research also revealed that there is general acceptance from banks that liquidity for instruments in scope will shift from single bank portals to newly regulated SEFs, MTFs and OTFs. The key challenges seen here by respondents are how banks will then differentiate themselves to customers and how buy-side firms will connect to multiple venues available.
Thomson Reuters today publicly committed that its conversational dealing solution, Thomson Reuters Dealing, and post-trade notification solution, Thomson Reuters Trade Notification, will join Thomson Reuters Matching, the multi-bank portal Reuters Trading For Exchanges (RTFX), and Thomson Reuters Post-Trade Confirmation to form a holistic suite of regulatory-compliant services that offer complete straight-through processing for OTC derivatives instruments. For Thomson Reuters Dealing this will also require adoption of a new global rulebook in mid 2012, well-ahead of expected deadlines.
“Our research found that the banks greatly vary in their levels of preparation for the implementation of regulatory changes,” commented Jas Singh, Global Head of Treasury, Thomson Reuters. “The smaller, non-USA domiciled banks have generally adopted a ‘wait and see’ approach to regulation whereas the majority of larger banks are proactively lobbying, planning, prioritizing and building the necessary capabilities.
“We are now setting out a clear timeline for our own regulatory-compliance activities that will enable our customers to plan for the forthcoming regulatory changes. At a time of regulatory uncertainty we feel it is important to take a lead and help our customers navigate the maze. We will be delivering enhancements to our products that not only help our customers address the new regulatory environment but also greatly improve their efficiency and workflow,” added Singh.
Workflow effectiveness and integration were seen as the key to success for new SEFs and MTFs by the majority of banks interviewed. How vendor and client systems, processes and data work together across the workflow from pre-trade, to trade and post trade will determine the popularity of different venues according to the banks.