The impact of regulation on buyside users of derivatives

John Lund

Journal of Securities Operations & Custody, 2017, vol. 9, issue 3, 206-214

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 (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2017
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