Swap your workflow

We’ve discussed the current course of regulatory change, specifically Dodd-Frank here in the States, and alluded to the “total set of changes the derivatives industry is going to go through”. But one thing is clear, the interrelationships between buy-sides, sell-sides (FCMs and swaps dealers, executing and clearing brokers) and CCPs is going to get increasingly complex. Though superficially the burden appears to fall on the clearing side, the reality is that the entire swaps trade lifecycle – from pricing, funding and execution through to affirmation, clearing, allocation and margining – will require extremely sophisticated and complex workflow solutions.

As others have pointed out, some of this workflow revolves around bookkeeping (so-called “compaction”, rebalancing and termination) of cleared swaps. But the pre-trade certainty implied by CFTC rules 1.73 (“clearing FCM risk management”) and 1.74 (“FCM acceptance for clearing”), combined with the horizontal market structure of cleared swaps, suggests an integration of the trading and clearing platforms that has perhaps never existed before. Added to this is the challenge and necessity of sophisticated margining and collateral optimization, which the buy-side will increasingly demand in order to minimize the larger collateral burden of cleared swaps. Given the attendant operational workflows – e.g. supporting Legal Segregation with Operational Commingling (LSOC), or reporting to a Swap Data Repository (SDR) – one quickly concludes that the landscape of traditional trading and brokerage tools has changed irrevocably.

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