Global multi-asset brokerage Newedge has begun a project to adapt its business to the changing derivatives landscape, including a splitting of trading and clearing services.
Alongside the separation of futures and options execution and clearing, the restructure will streamline the firms operations and may include reducing the broker's geographic footprint to focus on its core strengths. Sources suggest this could lead to layoffs of around 400 staff.
“The plan presented today follows a strategic review of our business and is a measured, informed response to the challenges facing the industry. It will create a firm that is leaner, more agile and client-centric and will set the foundations for a sustainable future,” said Nicolas Breteau, CEO of Newedge.
The separation of clearing is a reaction to the heavy regulatory burden enshrined in impending regulations including the European market infrastructure regulation, Basel III and the Capital Requirements Directive. The rules will impose high capital charges on banks that facilitate trading activity in certain assets and lead to greater costs of clearing instruments that have hitherto been traded bilaterally.
The Newedge restructuring is further evidence that buy-side firms will have to engage in a thorough assessment of their broking partners in the new environment, with some suggesting that small- and mid-tier investment managers may struggle to tie down brokers that will clear swaps on their behalf.
“The listed derivatives industry is at a turning point,” added Breteau. “The pace and significance of change, driven by regulation, economic and market headwinds, and developing client needs, is set to continue.”
The plan is supported by Newedge’s joint shareholders – French brokers Crédit Agricole Corporate and investment bank and Societe Generale – and is subject to consultation and regulatory approval.