OTC Derivatives Reform
MarkitSERV's Jeff Maron
Know Your Counterparty20 February 2013:
With the move to SEFs and other electronic platforms in the swaps market, participants no longer know who their counterparties are, creating a lack of trust, according to MarkitSERV's Jeff Maron. As we move away from a relationship market, he says, participants need to have some certainty of execution and clearing.
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1 Comment to "Know Your Counterparty":
paulconstantino
22 February 2013
The point of moving to an exchange platform is to reduce systemic risk of a market participant as well as to provide liquidity and price transparency. Consequently, as in the futures markets, a participant knows its counterparty is the exchange and that those prices are executable and clear per the reputation (and their relationship) with the exchange, having a desired effect of spreading risk among the participants instead of isolating it.
Swaps are becoming commoditized, which has its own remifications (ie. stardardized vs a customized product), and participants themselves will need more effective risk tools, including those in pricing, exposure, compliance and collateral management, that they will need to manage themselves rather than outsource to a third party.
As swaps move to exchanges, we will more than likely see a movement in the clearing model to T, as in futures, which will further bolster confidence and reduce risk.
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