European hedge funds are becoming increasingly concerned about the cost of clearing OTC derivatives, according to a new survey by post-trade services provider Omgeo.
The survey, which covered 52 European hedge funds, revealed that 43% of participants have concerns about the cost to clear OTC derivatives, while 33% are concerned about the margining and collateral requirements in a cleared and non-cleared derivatives landscape.
The research added that 75% of participants expect to alter their internal procedures or invest in IT to accommodate regulatory change.
In line with the G20 countries’ commitments to reduced systemic risk in financial markets, the European Market Infrastructure Regulation and the US' Dodd-Frank Act aims to push as large a portion of the region’s OTC derivatives trading onto exchange-like platforms and clear them through central counterparties.
The majority of hedge funds are looking to improve post-trade processing to prepare for the anticipated higher volume of derivatives contracts they will need to clear once the rules take effect from the start of next year.
Of those questioned, 48% believed the removal of manual processing, faster confirmation of trades (17%) and improving connections with counterparties (17%) held the highest potential for improvements in post-trade operations.
“This survey highlights a high level of awareness around risk and regulation within European hedge funds,” said Matthew Nelson, executive director of strategy, Omgeo. “Once a fund’s trading reaches a critical mass and becomes highly complex, spread across various asset classes, geographies and clearing environments, manual processes need to be replaced by automated solutions.”