Despite the regulatory push for cleared and executed over-the-counter (OTC) derivatives, the bilateral OTC market shows no signs of disappearing, according to a survey done by InteDelta, a specialist risk management consultancy.
From April to June 2014, InteDelta completed a global survey of derivatives market participants to assess the impacts of regulatory reforms upon the OTC market. Those surveyed included banks, 59% of respondents, and asset managers, who constituted the remaining 41% of those questioned.
When asked, “How significant do you expect bilateral OTC derivatives to be for your firm in five years?,” seventy-nine percent of banks say that bilateral instruments will be an important part of their portfolios. Slightly more asset managers, 82%, agreed with the banks.
Despite the overwhelming belief that material portfolios of bilateral OTC derivatives are an ongoing reality, firms are implementing strategic systems and processes.
In fact, the InteDelta survey shows that 74% of banks have some sort of change in progress compared to 63% of asset managers. The non-technology burdens are hitting home via policy, process and documentation challenges such as:
- More than 90% of survey respondents feel that there would be a significant increase in complexity as a result of the new OTC trading rules;
- Nearly 80% of respondents say that documenting and implementing agreements, policies and procedures to comply with the new rules will require a high workload.
While bilateral OTC trading may not be changing for a while, the OTC reforms are causing new interest by the front office into the ownership of collateral and margin management:
- 90% of survey participants say their current organizational setup has to change in order to comply with new regulations;
- And 81% of bank respondents say that margining in the future will require greater input and ownership from the front office.
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