OTC Reforms to Hike Operational Costs

Terry Flanagan

OTC reforms will dramatically hike operational costs for market participants, leading them to streamline their derivatives operations.

“The implementation costs of compliance are likely to be significant, as are many of the ongoing costs of the new processes imposed by the regulatory rulings, such as clearing and trade reporting,” Jane Collins, head of regulatory initiatives for post-trade services at Thomson Reuters, told Markets Media.

“Dodd Frank in the U.S. and EMIR in Europe will dictate a new regulatory landscape for derivatives, forcing trading venues to comply with new rules and regulations for pre-trade, trade and post-trade requirements. This will include the central clearing of a number of in-scope OTC derivatives instruments.

In this environment, firms will need to manage in real time connections to multiple trading venues, clearinghouses and trade repositories, for all asset classes.

An example is non-deliverable options (NDOs). “We are seeing biggest growth in NDO trading in Asia, followed by Europe and the US. This growth is driven by the increased prominence of the Asian currencies, where currency controls apply,” said Colin Murdoch, head of post-trade services, EMEA at Thomson Reuters. “From a post-trade perspective, demand for straight-through processing in NDOs is being driven by this increase in volumes and the prospect of upcoming regulation.”

BGC, a global brokerage company servicing the wholesale financial markets, has gone live with NDOs on Thomson Reuters Trade Notification Service, which provides a secure, high-speed messaging hub that manages all trade notifications through a single connection to multiple trading venues, from voice and electronic brokers to bank portals, exchanges, ECNs.

“The launch of NDOs will enable BGC to expand its trade notification coverage to an additional market and a wider client base,” said Collins. “We expect that NDOs will fall under the new regulatory rules imposed under Dodd-Frank in the US and EMIR in Europe requiring trading venues to comply with new rules and regulations for pre-trade, trade and post-trade requirements. Thomson Reuters trade notification service supports these rules by providing robust and compliant solutions in this space.”

The Trade Notification Service has been designed to support any trade, asset class, counterparty or format and handle multiple deal types, both electronic and voice, said Collins. The service guarantees message delivery, providing proof of receipt and a complete archive of deal data, and connects directly into trade and risk management systems.

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