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The impact of regulation on buyside users of derivatives
Journal of Securities Operations & Custody,
9
(3),
206-214
(2017)
Abstract
Regulatory change has been a constant theme for the buyside since 2009, and to date, a minimal ‘compliance only’ approach has often been the appropriate response. External change in derivatives and collateral management has now accelerated dramatically to reach a ‘tipping point’, however, which buyside participants cannot ignore. Three recent (or upcoming) pillars of regulation especially are driving this sea change: mandatory clearing, UMR (uncleared margin regulation) and Markets in Financial Instruments Directive (MiFID II). Hence rather than a ‘compliance only’ response, an optimisation strategy involving fundamental infrastructure and business change is now more appropriate. This paper explores the external market drivers and quantifies the effect on the buyside in terms of real operational and business impact. This quantification is then used to justify the material investment required for strategic ‘future state’ optimisation functionality. Finally, possible areas of investment focus for the buyside are highlighted. In summary, market data on regulatory change are now available, which this paper uses to demonstrate the dramatic acceleration in buyside impact and hence the need for participants to switch assertively from a passive to an active strategy.
Keywords: optimisation, collateral, regulation, derivatives, clearing, central counterparties (CCPs), buyside
The full article is available to subscribers to the journal.
Author's Biography
John Lund is an independent practitioner specialising in derivatives and collateral management on both the buy- and sell-side. He has focused on derivatives change since 2009 covering both market and regulatory driven change including Dodd Frank, European Market Infrastructure Regulation (EMIR), uncleared margin regulation (UMR) and Markets in Financial Instruments Directive (MiFID II). He has worked extensively with sell-side clearing brokers to establish and develop services for the buyside for derivatives clearing and associated collateral services. Since 2014, he has worked with the buyside (asset managers) on multiple initiatives to respond to market driven change. He has spoken frequently at conferences as an industry expert on regulatory change as well as related infrastructure impacts (operations, finance and technology). He has also worked with industry organisations including International Swaps and Derivatives Association (ISDA) and the Investment Association (IA), as well as many of the vendors. Prior to this he was a senior manager for 10 years in Accenture’s capital markets practice.
