Newsroom

Sibos 2017 Toronto

The majority of the financial industry believe that up to 40% of OTC derivative transactions are un-collateralised

13 October 2017

New research reveals that 85% of financial institutions believe that up to 40% of all over-the-counter derivative transactions are not collateralised

Industry wide European research from SIX Securities Services today reveals the statistic that more than 8 in 10 (85%) financial institutions believe that up to 40% of all OTC derivative transactions are not collateralised. In fact, 14% would go as far as to say between 40 and 60% of these kinds of transactions are completely un-collateralised.

Respondents were also asked their views on whether this could change before 2019. Three quarters of respondents (75%) believe that 60-100% of all OTC derivative transactions will become collateralised within the next two years, but just 23% of all respondents think that 80% and above will be covered with collateral by then.

Over the past few years, the European Market Infrastructure Regulation (EMIR) has introduced a set of obligations for financial market participants to centrally clear certain classes of OTC derivative contracts through CCPs and apply new risk mitigation measures. The reform is set to be implemented by September 2020.

These results come as no surprise as the OTC derivative markets are currently subject to significant change. However, it’s expected that even after all reform elements are implemented, some portion of the OTC derivatives market (especially non-standardised derivatives such as commodities) will remain non-centrally cleared.

According to Tomas Kindler, Head Financial Center Services and Member of the Management Committee:

“Derivatives trading is, among other transactions, subject to growing cost pressure. It is clear that trading becomes more expensive and costs of collateral will increase as a result of extended regulatory requirements and a stronger demand.”

“In order to optimise the use of balance sheet, more automated and cost-efficient triparty services will be required, especially for firms using manual posting processes. They might have to switch from posting on a monthly to posting on a daily basis. Our contribution to this trend is to provide fully integrated front-to-back solutions creating scale effects across the industry.”

Further results of the research reinforce the need for a greater mobilisation of marketable collateral. 42% of respondents state that it is acceptable for collateral to be low quality, complex, and opaque, as long as it is cheap. Compared to SIX Securities Services last Collateral research, the number of financial institutions that are willing to accept collateral simply because it is cheap has increased by over 10%.

About the research:

The study surveyed 60 professionals in the UK, Germany, France, the Nordics and Switzerland. 30 respondents were IT decision makers and 30 collateral experts from buy-side and sell-side financial services institutions.  The number of respondents from buy-side and sell-side organisations was evenly split with 30 respondents from each. The average value of respondents’ organisations’ assets under management is $323 billion USD.

Our latest videos

Sibos 2017 Toronto – The future of post-trade

16 October 2017

Our latest news

Through its new Advanced Tax Services – Reclaim, SIX Securities Services has created a solution for Switzerland’s banks and investors to overcome the complex, country-specific and opaque processes that currently define reclaiming withholding taxes. Read full article

On Tuesday afternoon, a panel will explore whether the post-trade world can move beyond the search for scale. Global Custodian spoke to Thomas Zeeb, CEO, SIX Securities Services, one of the panellists. Read full article

In spring 2016, SIX Interbank Clearing was the first market infrastructure which completely moved to ISO 20022. The next big milestone is the migration of the Swiss banks to ISO 20022. Read full article

SIX Securities Services tops all ICSD categories in Global Custodian’s Agent Banks in Major Markets Survey for 2017. Read full article

SIX Securities Services tops eight out of 10 categories (80%) in Global Custodian’s annual Agent Banks in Major Markets Survey, placing it as the best Swiss Custodian. Read full article

As of 2020, SWIFT – the global financial messaging network – will only allow structured ordering and beneficiary data for payments. Unstructured addresses will no longer be possible. What is the industry to do?. Read full article

New research reveals that 85% of financial institutions believe that up to 40% of all over-the-counter derivative transactions are not collateralised. Read full article

According to the latest survey conducted by SIX Securities Services, over half of organisations (53%) questioned believe plans for a Capital Markets Union (“CMU”) will speed up in the wake of Brexit. Read full article

Findings from a pan-European research study indicates that the two groups fail to see eye-to-eye on issues such as the price of collateral, HQLA-shortfall and future challenges for the collateral management industry. Read full article

New research from SIX Securities Services reveals the importance of real-time settlement when it comes to choosing a new collateral management provider. Four in ten (40%) respondents report that their organisation has replaced or added a new collateral management provider in the last 18 months with a further 18% in the process of doing so. Read full article

Artificial Intelligence (AI) is rapidly becoming an integral part of client experience across a range of industries – some experts estimate that AI will have surpassed human intelligence by 2019! In our day-to-day lives we no longer think twice about trusting a bot to help us through a software installation and it has become second nature now to use voice commands for searches, ask about the weather, set calendar appointments and even buy pizzas. But what about the financial industry – and especially the post-trade industry? Are we ready for this change? Here’s what SIX Securities Services is doing in response to this prediction. Read full article

No stone is left unturned in the continuous pursuit of excellence in Swiss payments processing. The financial center is promoting ISO 20022 as the “lingua franca” for extensive harmonization activities that go far beyond interbank transactions. Read full article

The worldwide banking and financial crisis was part of the global economic crisis that began with the US real estate crisis in the summer of 2007. Read full article