Banks May Avoid Big Hit From Treasury Derivatives Shake-Up
May 13 2009 - 6:05PM
Dow Jones News
The financial impact on banks of extra U.S. oversight of the
over-the-counter derivatives sector will be mitigated by
institutions' expanding partnership with exchanges.
While the exchange operators are targeting the OTC market to
fill a gap left by falling volume in other products, banks have
proved adept at winning a share of potential profits from the
nascent business.
Large dealer banks had resisted efforts to shift trading and
clearing of profitable OTC business to exchanges, before a push
from global regulators intensified last year.
The U.S. Treasury plan unveiled Wednesday would force all
"standardized" OTC contracts onto regulated exchanges providing
centralized clearing.
Banks have succeeded in playing exchanges off against one
another to secure equity stakes and revenue sharing deals in new
clearing platforms for credit-default swaps, one of the first OTC
classes to shift to exchange-based clearing.
ICE Trust, the CDS platform launched by IntercontinentalExchange
Inc. (ICE), will cut 50% of revenues to bank members from next
year.
CME Group Inc. (CME) has been forced to boost the equity stake
offered to banks in its yet-to-be launched CDS platform from an
initial 30% to more than 50%.
Eurex, the derivatives arm of Deutsche Borse AG (DB1.XE), is
offering banks a 90% stake in its European-based CDS clearing
platform.
While exchanges have been engaged in trying to clear OTC
products for some time, the reluctance of banks to engage and lack
of standardization of products has frustrated many efforts.
Alongside the various CDS initiatives, the larger interest-rate
swap market is also being targeted by both CME and Nasdaq OMX Group
Inc. (NDAQ).
-By Doug Cameron, Dow Jones Newswires; 312-750-4135;
doug.cameron@dowjones.com