Derivatives markets participants face a great deal of uncertainty over post-crisis clearing mandates, and are interested in the establishment of a purpose-built market utility to address buy-side clearing requirements, according to a survey released by Sapient Global Markets.
The survey features the responses of 153 market participants and was conducted at the 2014 Futures Industry Association (FIA) Expo in Chicago. Three significant themes emerged, Sapient says in a statement.
First, firms expressed concerns over compliance uncertainty, according to the Sapient survey. In the report, roughly 40 percent of exchanges, broker dealers and high frequency trading (HFT) firms selected regulatory uncertainty was their greatest concern, officials say.
Firms are also uneasy about the cost of clearing. Roughly 40 percent of futures commission merchants (FCM) and sell-side participants said this was their greatest concern.
Finally, firms seemed to be interested in the creation of a clearing utility as a way to alleviate these costs and concerns. Roughly 50 percent or more of buy-side firms, futures commission merchants (FCMs), proprietary HFT and sell-side firms surveyed expressed interest in such a utility.
Operations and infrastructure are highly commoditized from one firm to the next, and there is “little strategic advantage or opportunity to differentiate services or increase revenue,” the report says. “As a result, market participants, regulators and exchanges are beginning to recognize the idea of clearing utilities as the answer to reducing the cost of complying with central clearing mandates and improving business profitability.”
Regulators are placing “tremendous pressure on the clearing community,” resulting in conversations inevitability focused on the costs involved and how to potentially alleviate them,” says Jim Bennett, managing director at Sapient Global Markets, in a statement.
“As a result, the industry is on the brink of transformation, as firms search for new ways to differentiate their clearing offerings while commoditizing the processes that either fail to offer competitive advantage or require decoupling due to regulatory requirements,” Bennett says. “This is especially true as firms consider how to increase efficiencies, reduce costs and improve returns while addressing the global nature of these regulations.”
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