Buy-siders at this year’s Euroclear Collateral Conference have said they are not clearing OTC derivatives in Europe until regulators make it mandatory.
With the rollout of new central clearing rules for OTC derivatives now penciled in for early 2016, the general consensus among panelists and the audience was that they would not be clearing the bilateral products prior to implementation.
“We don’t see the use of doing cleared derivatives at the moment,” said Roelof van der Struik, investment manager at Dutch hedge fund PGGM.
Van der Struik added that his firm was “positive that it will be a very beautiful thing coming” but he said he was “a bit worried about the benefits”.
An audience response showed that while 42% believed the benefits of cleared derivatives are clear and have a very positive impact, 29% said they had no plans yet and only 14% see the shift from uncleared to cleared derivatives to represent a 50% change for their business.
Central clearing mandates have come into force in the US, however Europe is behind on its implementation timeline. The G20 required the regulations to be in place by 2012, however it looks like the rules will be around four years late after a long writing and consultation process.
One buy-sider said earlier today that the buy-side “don’t have the luxury to build models around a hypothetical landscape that could be around in five years time”.
A sell-side panelist said the buy-side viewed the delay under the European Market Infrastructure Regulation “as a reason for putting their projects on ice” but urged that “pressing on really makes sense at this stage”.
The frustration of delaying central clearing rules has hit buy- and sell-side firms alike. Some clearing brokers have had to pull back from offering client clearing due to the rising costs and constant regulatory delays.
For the buy-side, clearing their OTC derivatives ahead of time is evidently not a priority right now, though they do appear to be getting clearing brokers in place, just not using them.
“Firms are approaching it the right way by establishing clearing partnerships, hopefully identifying how they need to adjust their operational infrastructure, but not actively clearing,” John Southgate, head of derivatives and collateral product management at Northern Trust.
“We work with investment managers who have gone through the process of selecting clearing members, doing the test trades but can’t justify going live with clearing early.”