Commerzbank and Clearstream to launch OTC derivatives support service
Commerzbank and Clearstream plan to launch their OTC derivatives managed service before the end of the year
Germany’s Commerzbank and Luxembourg-based Clearstream are planning to launch a new service designed to help customers prepare for central clearing of OTC derivatives.
The new TradeCycle service will be designed to aid firms managing OTC derivatives, covering trading, clearing, settlement, custody, and services within these such as advisory, valuation and collateral management. The aim is to have an end-to-end solution for OTC derivatives that will help users to cut costs, enhance yield and improve risk management.
The tool will also attempt to make things simpler by removing the complex negotiations with multiple banks and vendors for each transaction and replacing that with a managed service. It is due to launch in Q4 2013.
Under the Dodd-Frank act in the US and EMIR in the European Union, financial institutions will have to centrally clear the majority of formerly OTC derivatives contracts. Clearing at CCPs will require firms to set aside margin and collateral against the risk of a trade going wrong. By largely removing counterparty risk, this system is intended by the G20 nations to increase the stability of financial markets.
“Regulatory requirements increase the complexity in the day to day business of financial institutions and corporates and there is growing demand for streamlined services,” said Nikolaus Giesbert, divisional board member for fixed income and currencies at Commerzbank corporates and markets. “Clients with too many vendors engaged in OTC derivative transactions risk significantly higher funding expenses. Our holistic TradeCycle solution and effective collateral management strategies reduce operational inefficiencies and costs.”
In July, the European securities regulator ESMA began a consultation on OTC derivatives clearing with the release of a discussion paper on regulatory technical standards for the European Market Infrastructure Regulation, the new pan-European rulebook. Although the technical standards for central counterparties under EMIR came into force at the end of March, the new discussion paper is designed to help ESMA decide which classes of OTC derivatives need to be centrally cleared, and how long market participants will be given to prepare. The consultation is due to close on 12 September.
