Clearing Dominates Derivatives Discussions

Terry Flanagan

As the OTC markets transition to the brave new world of central clearing, buy-side institutions are moving their compliance efforts into high gear, both at the individual and inter-enterprise levels.

“It’s hard to overestimate the impact Dodd-Frank will have on the markets,” said Charley Cooper, senior managing director at State Street Global Markets. “It’s a sea change in the same sense as the ’40 Act and Glass-Steagall were, and we think this is as significant as anything when it comes to the derivatives markets.”

Cooper leads the efforts of State Street’s eExchange derivatives program to respond to market changes stemming from the Dodd-Frank financial reform bill.

eExchange, a division of State Street Global Markets, delivers trading systems for foreign exchange, futures, U.S. treasuries and the subscription and redemption of money market funds and exchange-traded funds.

“We work with clients to ensure the continued success of existing products and build new state-of-the-art trading and settlement offerings to comply with the evolving regulatory landscape,” said Cooper.

State Street’s derivative servicing suite includes end-to-end OTC and exchange-traded derivatives processing, collateral management and independent valuations.

The rise of OTC cleared derivative trade transmissions requires reporting standardization among futures commission merchants (FCMs), custodians, central counterparties (CCPs) and asset managers.

Historically, the margin statements provided to report trading and collateral activities when clearing swaps could be found in any number of different formats. The lack of formal standards for formatting and transmitting this data has led to operational burden and increased risk.

Sapient Global Markets facilitated the creation of a new buy-side industry standard for margin statements through a collaborative conversation between Sapient Global Markets, FCMs and custodians.

The Clearing Connectivity Standard (CCS) establishes a standardized connectivity format that can be used by the FCM community to transmit OTC clearing related information to their asset manager clients, custodians and CCPs.

Specifically, it outlines all of the message elements that should be universally present in margin statements, defined by fields, headers and descriptions.

“Due to go live on June 10, CCS is a universal format for cleared OTC derivatives margin, position and collateral statement data connectivity,” said Jim Bennett, global head of business development at Sapient Global Markets. “It allows clearing and service provider firms to streamline operations and reconciliation processes as they comply with the CFTC’s clearing mandate.”

State Street’s DerivOne addresses a wide range of derivatives requirements, including clearing, servicing, collateral, valuations and risk analytics.

“It’s a suite of products that automate processing across the middle and back offices, from trade confirmation and allocations to settlement and reporting, which spans State Street Global Markets and State Street Global Services,” said Cooper at State Street Global Markets. “I spend a lot of time with my counterparts in Global Service to make sure that what we are doing on the front office aligns with what they’re doing in the middle and back office.”

Prior to joining State Street in 2011, Cooper worked at Deutsche Bank in London, where he served as global head of legal operations in the risk management division, helping the company navigate the global financial crisis that began in 2007. Prior to joining Deutsche, Cooper spent more than two years as chief operating officer and chief of staff for the U.S. Commodity Futures Trading Commission.

“We have working groups that span different client types and which study the impact the Dodd-Frank Act will have on different client types, as State Street itself,” Cooper said.

Related articles

  1. Assessing Bond Liquidity
    Daily Email Feature

    Low Touch, High Liquidity

    Janus Henderson traders use a broad spectrum of electronic tools to optimize the search for liquidity.

  2. Florida CFO said ESG standards are being pushed by BlackRock for ideological reasons.

  3. Outlook 2016: Stephen Grainger, SWIFT

    The new regime requires a new investment playbook involving more frequent portfolio changes.

  4. Bats-Direct Edge Complete Merger

    DWS will hold a stake of 30% in the new company.

  5. More than 220 investors representing $30 trillion in AUM have signed up to 'Advance.'