It’s been a busy year for derivatives professionals as the industry has dealt with the rollout of new margin requirements, figured out how to best leverage various assets as collateral, kept up with the latest technology developments, and prepared for even more regulation to come in 2018. Here are some of the top stories of 2017, according to the readers of DerivSource.
As the market readies itself for the launch of MiFID II in January 2018, one of the impacts is an increase in the adoption of legal entity identifiers (LEIs). LEIs help financial firms and regulators aggregate and better understand counterparty exposures, providing enhanced market transparency and improved analysis of systemic risk. Listen to this popular podcast from May with the DTCC’s Ron Jordan, as he talks about LEI uptake, the challenges institutions might face in using them, and how MiFID II requirements for LEIs in transaction reporting will drive adoption. Read the accompanying commentary article here.
FinTech and RegTech continue to generate significant interest as firms seek to meet the challenges of an increasingly complex regulatory landscape while streamlining operations to boost efficiency. This feature by DerivSource reporter Lynn Strongin Dodds examines innovation in the capital markets from utilities and data offerings to blockchain and artificial intelligence. You can listen to a related podcast here.
As mandatory clearing pushes up the capital and balance sheet costs of bilateral trading, many trading firms are looking to hedge their portfolios using listed futures rather than more traditional swaps. Futurisation has been on the rise in 2017, and this Q&A article with Eurex’s Nicolas von Kageneck and Stuart Heath describes how market participants are incorporating Total Return Futures (TRFs) into their trading strategies. Watch the related webinar.
Margin reform took centre stage in 2017
Margin reform was a major topic of 2017 with the variation margin requirements coming into force for tier two and tier three firms in March. In this commentary, Farid Rahba, head of product management for collateral management at Murex, discusses collateral usage challenges firms faced as the rules went into effect and the strategic advantages of moving to a new operating model. (These comments were taken from this related webinar.)
Firms have grappled with how to put in place a new compliant—and efficient—collateral management system. This required ongoing collaboration between affected departments and with trusted partners and providers. In this article, Helen Nicol, global product director, Collateral Solutions at Lombard Risk discussed the strategic options for firms as they looked to comply with the new regulations.
This infographic explores the operational impact of margin reform, and the solutions firms have been choosing to ensure compliance and improve efficiency in both the short and the long term. It is based on a DerivSource webinar sponsored by Lombard Risk, and includes the results of audience polls and speaker quotes from the live panel discussion.
As collateral requirements have increased, many firms are looking to expand their use of non-cash, high-quality liquid assets (HQLAs) as collateral. Diana Shapiro, Director at Citi Futures, Clearing and Collateral, wrote a popular article for DerivSource on the impact of margin reform on firms’ collateral strategies, the pre-trade, pre-margin call, and post-trade opportunities for collateral optimisation, and the growing need for collateral transformation services.
See also this Q&A with FIS’ Ted Allen on tools that automate the process of allocating inventory for use as collateral, and this Q&A with Lombard Risk’s Lisa Jackson on collateral optimisation across the books: a focus on ETD flow.
CCP Clearing continues to evolve
CCP Clearing was another important topic this year. Mandatory and voluntary clearing is on the rise and buy sides must partner with more brokers than ever to meet best execution requirements. However, global brokers continue to reduce their clearing services, opening the way for smaller regional brokers as well as new direct access clearing models. This infographic from October (sponsored by Sernova Financial) explores current trends in CCP clearing and how the market is evolving.
The quotes and data in the infographic are taken from a DerivSource webinar—CCP Clearing Access—Where Are We Now and What’s Next? featuring panellists from BBVA, BMO Global Asset Management, Eurex, LCH and sponsor Sernova Financial.
Changing market conditions and regulations are also changing the securities financing space. This video interview with FIS’ David Selwood looks at how a managed services approach can help firms manage their stock lending and repo businesses in this evolving landscape. See the related Q&A aricle here.