Buyside seeks clearer view of OTC trading reconstruction
In an article describing the long hours regulators at the SEC and CFTC are putting in to implement Dodd-Frank, the chief operating officer at the Options Clearing Corporation is quoted as saying: "The regulatory structure in the US has some significant uncertainty to it right now."
One hot-botton issue currently being debated is how pension funds and asset managers will be required to handle margin collateral, which is posted to a clearing house, of a central counterparty, to protect against a default, which pits large asset managers who want such funds "segregated" in individual accounts, where each buyside participant's collateral is ring-fenced from that of others, ensuring each participant is not exposed to the default of another vs. futures brokers and CCPs , who argue that switching to this model for OTC derivatives "would bring significant added costs, which they aver would ultimately be borne by the customers."
One such cost would be an increase in the money CCPs ask of their customers to maintain an adequate default fund, since the collateral of non-defaulting swaps customers would not be available as a default resource. That, industry experts argue, will be another drag on investment returns for asset managers.
Publication
Financial Times
Date
January 9, 2011
Cross References (links may require a Cabinet subscription)
Dodd-Frank Act, Title VII, Secs. 724 727