Report highlights cost to the buy side in new era of swap trading

Report highlights cost to the buy side in new era of swap trading

http://www.automatedtrader.net/headlines/142827/report-highlights-cost-to-the-buy-side-in-new-era-of-swap-trading

First Published 5th June 2013

A study by Sapient Global Markets illustrated the cost of the central clearing mandate under Dodd-Frank.

Days before a wide array of entities are set to begin mandatory clearing for swaps, a study by Sapient Global Markets highlighted the cost of how the requirement can eat away at investment performance and pointed to standardised, centrally cleared contracts as the cheapest way to hedge.

“The drop in return ranges from between ~0.20% to ~0.62% for cleared hedges, up to almost 1.00% for traditional uncleared bilateral over-the-counter (OTC) trades,” Sapient said in a news release on its report.

From June 10, investment funds, non-swap dealer financial institutions, insurers and securitisation vehicles will be required to centrally clear certain swap trades. This followed the March 11 start of mandated clearing for certain interest rate swap and credit default swap trades for swap dealers, major swap participants and active funds.

The study compared the overall portfolio performance of a typical fixed-income fund using four different hedging instruments over a fixed historical period: uncleared swaps subject to pre-2008 margin requirements; uncleared swaps subject to the Basel Committee on Banking Supervision (BCBS) and International Organization of Securities Commissions (IOSCO) guidelines for margining (effective after 2015); swaps cleared through LCH.Clearnet SwapClear; and Eris Standard swap-futures (cleared through CME).

“Because of the significant impact on performance these results demonstrate, as well as the June 10^th timeline set by regulators, it is apparent that portfolio managers must examine their own hedging strategy based on expected cost of clearing with a renewed urgency,” said Ben Larah, manager, Sapient Global Markets.

“Once the post-Dodd-Frank and BCBS/IOSCO recommended treatment for uncleared derivatives takes effect, using standardised and centrally cleared instruments will be the cheapest available option,” Larah said.

The results of the study show that cumulative portfolio returns are highest when hedging is performed using uncleared swaps in a pre-2008 environment, and lowest when hedging is performed using uncleared swaps in a BCBS/IOSCO recommended environment. Sapient said these results showed the significance of the impact of Dodd-Frank/BCBS legislation on clearing costs; once the BCBS/IOSCO recommendations take effect the use of customized, uncleared swaps will jump from being the cheapest way to the most expensive way to hedge.

Sapient Global Markets said it conducted this study with support from LCH Clearnet and Eris Exchange. LCH.Clearnet SwapClear provided access to the LCH.Clearnet SMART Tool and Eris Exchange provided the initial margin percentages for the Eris Standard contracts.

Sapient Global Markets Announces Global Strategic Partnership With RWE Supply & Trading GmbH

Sapient Global Markets today announced it has signed a strategic IT partnership with RWE Supply & Trading, a leading European energy trading house.

via Pocket http://www.mondovisione.com/media-and-resources/news/sapient-global-markets-announces-global-strategic-partnership-with-rwe-supply-and/ May 15, 2013 at 07:08PM

Sapient Global Markets Extends Compliance Management and Reporting System with Addition of Portfolio Reconciliation Capabilities

Sapient Global Markets, part of Sapient (NASDAQ: SAPE) has today announced the ability for its popular Compliance Management and Reporting System (CMRS) to facilitate portfolio reconciliation.

via Pocket http://finance.boston.com/boston/news/read/24010367/sapient_global_markets_extends_compliance_management_and_reporting_system_with_addition_of_portfolio_reconciliation_capabilities April 25, 2013 at 07:25PM

New swaps standard offers buy-side flexibility

A new industry-led reporting and communication standard for OTC derivatives will give buy-side firms greater scope to automate regulatory-mandated reporting, including splitting margin payments to central counterparties (CCPs).

via Pocket http://thetradenews.com/news/Regions/Americas/New_swaps_standard_offers_buy-side_flexibility.aspx April 05, 2013 at 06:41PM

Google to Face Off with FINRA, Exchanges in Audit Trail Bidding

http://www.securitiestechnologymonitor.com/news/google-to-face-off-with-finra-exchanges-in-audit-trail-bidding-31629-1.html?ET=securitiesindustry:e4229:190117a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=STM_BNA_08302010_030613.

March 6, 2013
Tom Steinert-Threlkeld

Google, operator of the dominant set of data centers for indexing and searching for content on the World Wide Web, said it intends to submit a bid to build a consolidated audit trail of all stock and options quotes, orders and trade details for the Securities and Exchange Commission.

The Internet search giant will face off with a who’s who of the securities industry, including NYSE Technologies, the commercial arm of the company that owns the New York Stock Exchange; Nasdaq OMX Group, its chief rival in selling trading technology to exchanges around the world; and BATS Global Markets, an eight-year-old company that has used high-speed trading systems to take over about 10 percent of the nation’s trading in stocks on its two all-electronic national exchanges.

Industry Regulatory Authority, the regulator of brokers whose chief executive, Richard Ketchum, signaled in early 2010 an interest in creating and managing a database that would hold all the nation’s trading details for review by itself and the Securities and Exchange Commission.

FINRA, BATS, Nasdaq and NYSE Euronext all face potential conflicts of interest in submitting their bids. They all are part of the industry group charged by the SEC with formulating the overall plan to create the audit trail and pick the best bid to produce and manage the system.

“For many good reasons including technical and market expertise, the SEC tasked the exchanges to develop and manage the Consolidated Audit Trail process under its oversight and approval,’’ said Richard Adamonis, senior vice president of corporate communications at NYSE Euronext, owner of NYSE Technologies. “The proposal, like the entire process, is highly transparent and open for public comment.”

The potential conflicts are not likely to be show-stoppers, however. “If they end up going with a firm that is part of the working group, they will have to come out with clear criteria in terms of how they won the project,” said Sang Lee, managing partner of industry consultancy Aite Group. “I would say it is almost a disadvantage to be on the working group and also a bidder. At least, (such a bidder would) have a higher public perception hurdle to overcome.”

The audit trail plan is a response to the May 6, 2010, flash crash, which revealed how ill-equipped the nation’s regulators were to analyze market disruptions.

The staffs of the SEC and the Commodity Futures Trading Commission took five months to piece together details of what happened on that date to trigger a 600-point drop in the Dow Jones Industrial Average in a matter of minutes that afternoon; and, a similarly speedy bounceback.

Also announcing their intents to bid are a variety of the industry’s best-known technology suppliers, including SunGard Data Systems, Cinnober Financial Technology and Tradeworx, which is already creating a real-time database of trade details on public markets for the SEC; financial information service Thomson Reuters; consultancies that include Capgemini Financial Services, Grant Thornton, Wipro, Infosys, and Sapient; and the International Business Machines Corporation, the largest provider of information systems services.