We have wandered into the world of the Twitter for this blog entry. We attended, if indeed “attended” is the right word for it, a Twitterview with DerivSource (The online community and information source for professionals active in derivatives processing, technology and related services @DerivSource) interviewing Kevin McPartland (Principal and Director of Fixed Income Research, TABB Group @kmcpartland) and Tony Scianna (Deputy head of Strategy, Sunguard @tonyscianna).
This being our first Twitterview, I wasn’t really sure how to report back on this. So I’ll post the transcript and see how that goes.
DerivSource
Cost of participation in OTC markets will rise; how will firms evaluate if they should exit this space due to higher cost?
Kevin McPartland
For most it’s simple ROI analysis – will upfront costs yield substantial profits? For others it’s cost of staying in the game at all
Tony Scianna
Firms will need to do cost & risk analysis to determine whether or not it’s still cost-effective to be in markets they’re in
DerivSource
With electronic trading landscape still in flux, what challenges does industry face to reduce costs and improve returns?
Kevin McPartland
Many on the buy side will rely on their brokers to do the legwork –technology, compliance, etc. …
For the dealers, it’s about designing the right business model based on what we know now
Tony Scianna
It’s about creating transparency and liquidity. If you can get these things right, you will automatically reduce costs
DerivSource
How will firms cope w/ margin & liquidity squeeze clearing will introduce? What should firms change now to prepare?
Kevin McPartland
Margin financing, collateral optimization and other similar services are in high demand, and their use will grow.
This will help reduce buy-side margin needs and help dealers make money around clearing
DerivSource
Why should firms focus on enterprise data management now? How can firms improve agg of data across silos in cost efficient way?
Tony Scianna
It’s a must. Firms will need to capture, standardize & have access to data across enterprise in real time
Kevin McPartland
@tabbgroup sees transaction volume could grow 20 fold – related data even more. Waiting to deal with this is not an option
DerivSource
How will firms balance tight IT budget w/ onslaught of new reg requirements & uncertain timeframe for implementation?
Tony Scianna
A lot of firms will seek point solutions as reqs are issued. We see larger firms taking a more enterprise-wide approach
Kevin McPartland
Some firms are deciding not to offer client #clearing. The payback was not seen as justifying the cost…
Others in the 2nd tier will take a wait-and-see approach to limit unnecessary work
DerivSource
Is there a silver lining to the transformation taking place in the OTC space for firms & the industry at large?
Kevin McPartland
OTC #derivatives reform will ultimately be good for the industry. The rules overreach in some parts, but …
…more automation and open access will ultimately improve liquidity and pricing in the swaps market
Tony Scianna
Clearly the intent of transparency & reduction of systemic risk will benefit the industry, though will take awhile to get there…
Industry coming together to create standards & reduce systemic risk is ultimately a good thing
DerivSource
thank you @kmcpartland & @tonyscianna for your thoughts on #TENfs!
Tony Scianna
Thank you for a great discussion of OTC derivatives @DerivSource & @kmcpartland.
There was a question from the “floor”, from us at Redhound (@Redhound_UK).
Redhound
Is there a risk of a lack of transparency with some firms implementing tactical solutions without enterprise wide data management?
Tony Scianna
Yes, I believe that ultimately all reporting reqs will need enterprise wide views. Thinking ahead will reduce that exposure.
So, all together a very interesting discussion. It is clear that the move of OTC derivatives to CCH is going to introduce some degree of standardisation and transparency. However, there are going to be associated costs for the Sell-Side firms and tough business decisions to be taken on whether this is absorbed or passed on to the Buy-Side. One thing that is clear from both Kevin and Tony is the requirement for strategic thinking in terms of enterprise wide data, real time availability and consolidated position information.
Looks like it’s going to be another interesting 18 months or so as these start to work their way out in to the OTC domain.
Any questions – let us know!