The Managed Funds Association (MFA), the trade association for US hedge funds, has pledged its support for the recommendations on equity derivatives practices set out by a group of 17 US broker dealers in a letter of 21 November to the Federal Reserve Bank of New York and other US securities and derivatives markets regulators.
In their letter, the broker-dealers committed themselves to work with non-dealer market participants, particularly hedge funds and other asset managers, to develop standardized documentation for equity derivatives. MFA says its “applauds” this commitment.
Hedge funds are the largest single group of participants in equity derivatives markets and share with dealers the risks and the responsibilities of investing in derivative products.
Accordingly, says MFA it “looks forward to working with the major dealers on the objectives set forth towards achieving higher operational efficiency in these active markets.”
MFA in particular commends the dealers’ commitment to automated solutions for standardized products across electronic platforms and says its looks forward to providing input on the use of various platforms to satisfy this objective.
MFA has two representatives serving on the Depository Trust and Clearing Corporation (DTCC)’s Senior Operations Group to make recommendations on these types of automated solutions.
“We applaud the major dealers for reaching out to our members for their support in achieving the 2007 targeted objectives for improving market practices in equity derivatives,” says John G. Gaine, MFA President. “We believe it is essential for the dealers to seek input from hedge funds that are active in equity derivatives markets in order to ensure that the implementation process will work for all market participants. As with the development of MFA’s 2005 Sound Practices for Hedge Fund Managers, MFA’s current outreach with the major dealers on equity derivatives demonstrates the industry’s dedication to improving market soundness.”
MFA also says it recognizes that future market evolution may require adjustments in the electronic platform strategy. In addition, in the interest rate, commodities and foreign exchange (FX) markets, MFA continues to support the growth of standardized documentation and automation, and supports the greater adoption of electronic trade confirmation platforms in both interest rate and commodities markets in order to achieve higher efficiencies across the derivatives industry.