As developments in cloud-based technology start to take precedent throughout the industry and traditionally outsourced functions are increasingly being brought in-house, buy-side and proprietary trading firms are beginning to take more control over margining and clearing operations, an Acuiti report has revealed.
According to the study, produced in collaboration with FIS, firms are increasingly looking into opportunities to become direct members of a central clearing counterparty (CCP), with 44% of the firms surveyed stating that they would be open to exploring or adopting self-clearing in the future.
Additionally, 12% of respondents said that they had already become an individual clearing member.
To explain this trend, the report pointed towards the upcoming SEC’s US Treasury clearing mandate as a key driver for self-clearing by creating a demand for ‘done-away’ models, with the deadline for cash market transactions set for 31 December 2026, followed by the repo date on 30 June 2027.
Specifically, 50% of the firms considering becoming a clearing member said that the mandate and associated cross-margin schemes were either central or very important to their decision, while a further 25% highlighted this as quite important.
Cost reduction, competitive advantage and improving operational efficiency were also cited as incentives behind becoming a clearing member, although challenges such as understanding and complying with regulatory requirements were also recognised by participants.
“With the US Treasury clearing mandate acting as a catalyst, we expect the self-clearing trend to accelerate further over the next five years, although the number of exchanges that firms self-clear on is likely to remain limited,” said Ross Lancaster, head of research at Acuiti.
Lancaster also indicated that as margin management evolves across the industry, the adoption of automated and technology-driven processes is also likely to grow.
He said: “As firms review their technology and operational requirements to self-clear, we expect more to explore Business-Process-as-a-Service (BPaaS) options to reduce the barriers to entry.”
An increased interest in self-clearing opportunities also coincides with the growing trend of more buy-side firms taking greater control over their margin processes, with 69% of respondents saying they have increased their authority over margin calculation and payment, and a further 10% stating they also plan to do so.
This increase follows developing sophistication and transparency of margin analysis and calculations in the modern derivatives market over the last few years, with the report also indicating that recent spikes in market volatility are encouraging firms to deliver more investment into modelling and predicting margin calls and exert greater control over these processes overall.
Acuiti and FIS produced the ‘Margin Management and the Rise of Self-Clearing’ study based on a survey and interviews with 64 senior executives from buy-side and proprietary trading firms.