State Street Corporation (NYSE: STT), one of the world’s leading providers of financial services to institutional investors, today announced the findings of a new Vision report entitled, “Charting New Territory: Buy-Side Readiness for Swaps Reforms,” exploring the readiness of institutional investors for derivatives reform. Based on TABB Group research commissioned by State Street, the report explores the readiness of buy-side swap market participants who collectively represent more than $10 trillion in assets under management. The findings illustrate the state of the industry’s readiness to implement the key provisions of swaps reform, and describe the heavy focus firms are placing on the clearing aspect of regulatory requirements while struggling to adjust to new margin demands.
Key highlights from the Vision report include:
- Margin requirements are the No. 1 focus for buy-side firms when preparing for regulatory reform
- Financial strength is the No. 1 factor when selecting a central clearing counterparty
- A drop in liquidity was cited as the most likely unintended consequence of regulatory reform
- More than one-third of buy-side firms do not have the high-grade collateral required to enable swaps trading in a centrally cleared world
- Reporting is the regulatory component for which buy-side firms feel least prepared
The report also explores the key issues the buy-side must solve to successfully transition to the post Dodd- Frank environment including:
- Overall buy-side readiness for derivatives reform in various categories including registration, capital/business standards, trading technology, selection of futures clearing merchant (FCM) or swap execution facility (SEF) and organized trading facility (OTF), and reporting
- Key concerns for the buy-side with respect to the pending changes
- The services and other factors that could influence decisions to choose an FCM, SEF, and central clearing counterparty (CCP)
- Potential unintended consequences of regulatory reform
“The buy-side supports the idea of transparent markets and the entry of new participants to compete in a market place traditionally dominated by a few key players, and generally sees the regulations as fair and benign, but also as more costly,” said Clifford Lewis, executive vice president and head of State Street’s eExchange business. “However, the process of transformation is challenging and it dominates the buy-side’s thinking. They see a long road ahead before there will be collateral-efficient clearing solutions, competitive electronic execution and increased volumes that mitigate concerns about liquidity.”
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