A vital utility in the OTC derivatives industry

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7 July 2015
Anshuman Jaswal
Leading OTC derivatives industry participants including banks and post-trade services providers are backing the creation of an creating an OTC post-trade infrastructure utility. This hub will help automate the margin management in the industry and is also expected to reduce the disputes around margining. Until recently, moving important functions to utilities was often frowned upon. In several instances, firms showed reluctance to participate in a utility unless there was evidence of widespread acceptance of its services. But now factors such as regulatory requirements and the need to cut down upon costs are creating an environment conducive for the greater acceptance and use of utilities. To that extent, the industry has reached the tipping point with several other instances of utility or near-utility services being offered, most notably for KYC requirements. This is a good sign for the industry overall. The higher cost of operation due to regulatory requirements and the ever-growing need for investment into technology up-gradation means that often it might make more sense to move such services that are either more commoditized or require industry cooperation (or both) onto a utility platform. Hence, such a step in the highly competitive OTC derivatives industry is quite significant. It will help increase automation and efficiency, reduce costs, and encourage other segments in the capital markets industry to consider the use of utilities in a more positive manner.

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