Capital pressures see banks turning to tech vendors

IDX panel says clearing banks need new tech to cope with impact or capital rules.

The demand for technology solutions has never been higher for clearing banks as a result of the capital requirements, according to panellists at the FIA IDX conference.

Increased capital requirements have forced huge cost pressures on clearing banks, or futures commission merchants (FCMs), causing some to pull out of the space. 

According to Matthias Graulich, chief strategy officer at Eurex, the industry has become so preoccupied with dealing with the capital rules that activity in some solutions offered by clearing houses has not picked up.

“We have Prisma that allows cross margining between listed and OTC derivatives. Why hasn’t it attracted massive business? I think the problem the industry is facing around the capital requirements is way bigger than the benefits people can realise on margin efficiencies. All the efforts are dominated by solving the capital issues,” said Graulich.

“Cross-margining will become a bigger benefit once the capital problems are solved.”

Ray Kahn, head of agency derivative services at Barclays, said the capital requirements means improvements in technology now sit with the clearing agent.

As a result, there is increasing demand from banks for capital efficient solutions.

“The FCM has a place and it will [eventually] get to that place in the ecosystem we are facing. But there are a number of innovative and utility-type solutions in place and the technology vendor is so in demand,” said Kahn.

“We are all lining up to say ‘do you have something that will make our operations more efficient?’ The reality is that the industry is seeking efficiencies that will allow it to operate at an equilibrium, and we will look for anybody that can provide this.”

Last year Barclays signed up to outsource its post-trade derivatives operations with FIS. Last month, Credit Suisse also opted to outsource certain clearing functions to the tech vendor.