NEW YORK ( TheStreet) --The opaque $600 trillion over-the-counter derivatives market begins to come out of the shadows this week as new rules create opportunities and risks for the likes of Goldman Sachs (GS), JPMorgan Chase (JPM) CME Group (CME) and the soon-to-be-merged IntercontinentalExchange (ICE) and NYSE Euronext (NYX).
Roughly three years after the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act was signed into law, Wall Street megabanks will have to start trading over-the-counter derivatives such as interest rate swaps and credit default swaps through clearinghouses, in a move to minimize the linkages between firms. The idea is to help avoid a repeat of the nightmare chain reaction that followed the collapse of Lehman Brothers in 2008.
On March 11, dealers and major market participants -- those who trade over 200 swaps a month -- were compelled to begin clearing so-called "over the counter" trades through clearinghouses. Companies affected by this mandate include Goldman Sachs and JPMorgan. By September, all others such as pension funds and corporations that use OTC markets to hedge their business risks will follow suit.
Potential beneficiaries include CME and IntercontinentalExchange, which recently inked a deal to acquire NYSE Euronext that is still awaiting regulatory approvals.Bank of America Merrill Lynch analyst Michael Carrier estimates revenues earned from clearing OTC derivatives trades could grow to up to $750 million annually, or about 8% of the combined revenue of CME Group and the potentially merged IntercontinentalExchange and NYSE Euronext. "
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