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“The move towards voluntary
clearing will lead to
organisations being more
strategic towards their
clearing brokers.”
ROB SCOTT, HEAD OF CUSTODY AND
CLEARING, COMMERZBANK
in moving to clearing.
Commerzbank’s Scott believes it is up to their
sell-side partners to provide these tools and help
facilitate this move.
“It is therefore incumbent upon the service
community, i.e. custodians that offer clearing
services, to be able to help clients in both under-
standing and impact assessment,” says Scott.
“Once the commercial and counterparty risk
benefits are better understood, there should be
no reason why you wouldn’t move most of your
activities and operate in a cleared world.
“Early on Commerzbank developed a ‘what-if’
scenario capability where clients can backload
or frontload their portfolios and see the specific
impacts in terms of balance sheet and pricing.
However, across the buy-side community this
capability is generally lacking, as they do not have
sufficient tools and expertise to properly assess
and for many it’s not mandatory for them to do
so.”
It is also on banks and other clearing infrastruc-
tures to provide both the access and the capa-
bilities for the buy-side to move into clearing.
Direct clearing models are large step to help this,
but take-up has been very slow. Furthermore,
liquidity will continue to be one of the main
determinations for where the buy-side clear and
what banks they use.
“Given these new products are being estab-
lished all the time, there are more clearinghouses
expanding in to OTC. However, some clearers
are struggling with scale, and this is where more
48 // TheTrade // Summer 2018
client clearing volumes will
concentrate with the top
FCMs,” adds JP Morgan’s
Rustad.
BNP Paribas’ Smith says it
has become easier for banks
to clear bilateral derivatives,
given most banks went
through a learning phase
with the first set of products.
However, there remains chal-
lenges on the risk manage-
ment side for client clearing,
such as whether the default
management processes
are appropriate for certain
products.
“FCMs and CCP’s will
have to adapt their products,
but clients will want their
banks to be able to clear a
wide range of models and be
involved in various access
models to CCPs,” Smith says.
To a large extent, the ability
to venture into voluntary
clearing is there amongst
the buy-side. The tools are
there for the larger players
that have the scale