Frances Maguire
Frances Maguire

Overcoming systemic risk: FX adapts to a new competitive OTC clearing landscape

With clearing for credit default swaps and interest rate swaps already underway, Frances Maguire explores what factors will influence the likely providers of clearing services for FX OTC instruments.

Clearing has always been considered as the jewel in the crown in the derivatives industry and if credit default swaps (CDS) and interest rate swaps are anything to go by then there is a likely to be a similar number of providers for clearing FX options. Indeed, CDSs and interest rate swaps seem to be a test bed for clearing FX OTC instruments as soon as there is regulatory clarity. OTC FX is considered the last frontier of non- cleared asset class business and the debate has been a long running one. What is fanning the flames of the debate now is regulation – the Dodd-Frank act in the US and the regulation coming out of the European Commission – and that FX will be cleared. There is still uncertainty. Most accept that FX options will be cleared, but the final treatment of forwards and swaps, and the exact definition of a Swap Execution Facility (SEF), are still to be hammered out. Shape of rules and regulations There are some strong clues in the Dodd-Frank act, however, as to the likely...continued

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