This might be my last Minding the Gap column ever as the ancient Mayan calendar points to the world ending on Dec. 21, 2012. However, my guess is that discerning an expiration date for humankind is tricky as multiple cultures have conflicting calendars. But, if the Mayans were wrong, we will have lots to do after the Apocalypse.As space is limited for this column, I will focus on two major industry milestones that should keep us all busy in the Post-Apocalyptic New Year:
The Brave New World of OTC Reforms
In case you’ve missed it, there has been a lot of forward movement for the execution and clearing of over-the-counter (OTC) derivative instruments. Forgive me but this is a rather random and unscientific gathering of some of the OTC reform news that broke over the past few weeks—I’m certain there are bits I missed and many sexy OTC news items to come. However, here is what caught my eye:
- Earlier this month, the International Securities Association for Institutional Trade Communication (ISITC) released its Market Practice guidelines for cleared derivatives and contract notifications between investment managers and third-party providers such as custodians, accounting agents and prime brokers. This is an effort, begun by the ISITC Derivatives Working Group, to help firms clarify the traditionally manual notification process and thus introduce more automation and accuracy to the process.
- The Commodity Futures Trading Commission (CFTC) has approved a request by the Depository Trust and Clearing Corp. (DTCC) that its data repository be allowed to amend its multi-asset class swap data repository (SDR) to include commodity derivatives. CFTC officials are allowing the DDR to operate a U.S. SDR for OTC credit, equity, interest rate and FX derivatives. This is a significant first step toward real transparency across multiple OTC markets and asset classes.
- Looking overseas, CME Clearing Europe, the European multi-asset class clearinghouse, has appointed global custodian bank BNY Mellon as the provider of tri-party collateral management services for buy-side and sell-side firms and clearinghouses. The services will come via MarginEdge, BNY Mellon’s derivatives margin management service for listed, OTC and bilateral OTC derivative instrument. Tri-party collateral management is up there with rocket science so any help the industry can provide is very welcome indeed.
- In other solutions and services news, analytics and data management solution provider Xenomorph and Numerix, a provider of cross-asset analytics for derivatives valuations and risk management have partnered to offer a best-of-breed technology solution for derivatives trade pricing and risk management. The partnership will bring together the Numerix Portfolio’s application for pricing and hedging complex OTC portfolios with Xenomorph’s TimeScape analytics and data management system for a centralized framework. More vendor alliances like this will be forthcoming and could go a long way toward streamlining OTC execution and clearing environments for end-user firms.
Soaring Off the Fiscal Cliff
Away from the OTC markets, we have to face the strong possibility that the U.S. federal government could fly off the proverbial fiscal cliff—seemingly worse than the Apocalypse—as President Obama and House Speaker John Boehner have yet to work out a deal.
The markets hate the limbo created by the endless bickering in Washington, D.C., and if no deal is reached, I predict the markets will go haywire. This might be a good thing as a steep drop in the U.S. markets is likely to spur compromise by the White House and Congress. Not all of the Draconian tax hikes and automatic funding cuts of the Budget Control Act of 2011 will take full effect immediately after Jan. 1, 2013. Thankfully, there is some legislative leeway to fix things as we cling to the edge.
Of course, a fiscal cliff deal could be reached in the nick of time. This would be a much-needed bit of holiday relief for a country already beleaguered by a weak recovery, a divisive Presidential race, the ravages of Hurricane Sandy and just last week the horrific mass murder of children and adults at an elementary school in Newtown, Conn. As President Obama recently stated, such a tragic event should give all of us pause and a new perspective on the extremely important matters we face. It is time for all players in the fiscal cliff mess to act like adults. We will see if they do.
So, while we face a potential Apocalypse, FTF News is certain that it will be taking a break next week and returning (we hope) early in the New Year.
Until then, we wish all of you the best of holidays, all the good cheer you can handle and a peaceful and productive New Year.
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