According to a new survey by Thomson Reuters, uncertainty surrounding upcoming OTC derivatives regulation is prompting concern amongst banks in four key areas. The implications of the regulations on capital requirements, workflow, the cost to trade and liquidity for single-bank platforms were highlighted by banks as unknown outcomes of most concern resulting from the proposed shake-up.

Thomson Reuters has also set out a timeline for its own regulatory-compliance activities. The company intends to ensure all of its trading platforms are registered as regulated trading venues in all relevant jurisdictions, including registering as a swap execution facility (SEF), multilateral trading facility (MTF), or organised trading facility (OTF).

According to its survey, clearing emerges as banks’ primary focus today as the details around workflow are still unclear and clearing is intrinsically linked to the pricing of instruments. Within the trading workflow the bank must now consider whether the instrument needs to be cleared, what clearing information is required, how to effectively and efficiently manage the routing of trades to central counterparty clearing houses (CCPs) and trade data repositories and what requirements for reporting will be for the repository and to the market. The research also revealed that there is general acceptance from banks that liquidity for instruments in scope will shift from single bank portals to newly regulated SEFs, MTFs and OTFs. The key challenges seen here by respondents are how banks will then differentiate themselves to customers and how buy-side firms will connect to multiple venues available.

“Our research found that the banks greatly vary in their levels of preparation for the implementation of regulatory changes,” says Jas Singh, global head of treasury, Thomson Reuters. “The smaller, non-USA domiciled banks have generally adopted a ‘wait and see’ approach to regulation whereas the majority of larger banks are proactively lobbying, planning, prioritizing and building the necessary capabilities. We are now setting out a clear timeline for our own regulatory-compliance activities that will enable our customers to plan for the forthcoming regulatory changes. At a time of regulatory uncertainty we feel it is important to take a lead and help our customers navigate the maze. We will be delivering enhancements to our products that not only help our customers address the new regulatory environment but also greatly improve their efficiency and workflow."

Workflow effectiveness and integration were seen as the key to success for new SEFs and MTFs by the majority of banks interviewed. How vendor and client systems, processes and data work together across the workflow from pre-trade, to trade and post trade will determine the popularity of different venues, according to the banks.

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