This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

State Street Report Takes The Pulse Of Buy-Side Firms Mandated To Clear OTC Derivatives

Buy-side firms are unprepared for new trading mechanisms, costs and increased complexity and should partner with established providers to adapt to an evolved OTC derivatives marketplace, according to research commissioned by State Street Corporation (NYSE: STT). The new research paper, “From Readiness to Revolution: The Implementation and Impact of Derivatives Clearing Regulatory Reform,” provides insight into preparations for swap execution facilities (SEFs), central clearing, collateral management and reporting.

State Street, which operates as a futures clearing merchant (FCM) and a SEF, commissioned the research with Aite group which surveyed buy-side firms that collectively represent more than $6 trillion in assets under management. The research highlights developments across the entire trade life-cycle and includes a roadmap to readiness for Category III firms - those firms that have yet to complete the Commodity Futures Trading Commission’s (CFTC) phased implementation of derivatives clearing.

“The days of the excel spreadsheet are gone, collateral management has moved to the front office and phones have been traded in for exchanges,” said Jeff Conway, executive vice president and head of State Street Global Exchange. Global Exchange brings together existing components from State Street’s research and advisory, analytics, Currenex®, Global Link® and derivatives clearing capabilities to address clients’ data information and trading challenges. “As the trend towards electronification continues, regulatory reform demands strong technology. We are well positioned to provide the buy-side with solutions to these challenges across the entire trade cycle, from execution to clearing to collateral.”

Key highlights from the research include:

Clearing and Collateral

Category I firms (companies that have completed the transition to mandated clearing) report that first movers had the advantage to negotiate more advantageous FCM agreements that allowed for preferential terms and conditions relating to fees and margin requirements, while Category II firms (firms that have also met clearing mandate requirements) later found FCMs less flexible in their willingness to lower fees. Category III firms who have not put agreements in place early will need to partner with well-established FCMs that can quickly respond to their customers. Other findings include:

  • Firms tend to select FCMs based on financial stability and pre-existing relationships; for firms that had a pre-existing relationship, the FCM’s ability to bundle services to reduce cost became a consideration
  • Many firms have only on-boarded with a single FCM and clearing house, allowing only for short term compliancy rather than long term success with multiple FCMs to diversify risk exposure
  • Posting initial and variation margin continues to be an operational and technological headache; nine out of eleven firms indicate that they either already outsource the collateral management function or intend to do so
  • More than 60% of respondents indicate that staffing and timing are critically important, with frequency of collateral movements and impact on performance ranking “highly important” for more than 70% of those interviewed

Execution

On June 4, 2013, final SEF rules were published in the Federal Register that provided clarity to SEFs wanting to enter this new marketplace, and established an effective date of August 5, 2013. With the effective date looming, “From Readiness to Revolution” not only addresses the anxiety the buy-side still has over new trading mechanisms, immediately increased costs and electronification itself, but also highlights the long term benefits that standardized work flows and increased competition offer.

1 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,985.61 +78.99 0.47%
S&P 500 1,972.83 +9.12 0.46%
NASDAQ 4,419.0340 +27.5710 0.63%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs