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The global financial markets were watching closely in December 2009 when the US House of Representatives passed The Wall Street Reform and Consumer Protection Act of 2009 (H.R. 4173) that, if made law, would bring with it the most sweeping changes to the derivatives market since its inception.
“The 200-plus pages of derivatives-focused legislation leaves many questions unanswered,” says Kevin McPartland, senior analyst at TABB and author of a new study published today, “OTC Derivatives U.S. Regulatory Update,” adding, “The road ahead will continue to be long and bumpy as the U.S. Senate takes up the debate when back in session on January 20th.”
McPartland analyzes the language of the bill, describes what the OTC derivatives reforms can mean for the marketplace and what lies ahead once the Senate passes their version of the bill by early summer 2010 before a compromise bill is readied for President Obama’s signature. “Depending on the complexion of the bill enacted,” he says, “there could well be a new landscape on the near horizon and a new set of players. The end result will not be a risk-free market, but a market with more opportunities for more participants than we had before.”
In the new environment, he explains, although major dealers completely dominate the market today, competition will increase. “This includes smaller, more nimble, tech-savvy, new dealers capable of competing with the bigger dealers, assuming that the new regulations level the playing field.” He adds that anonymous trading and clearing will allow ‘near-dealers’ directly into the markets as smaller buy-side firms begin setting up sell-side OTC trading desks.
The new TABB Pinpoint study with 16 highly descriptive, multi-level charts and graphs, supported by a video summary at http://www.youtube.com/watch?v=xdeVjEf-xak, examines the current state of the OTC derivatives market as it moved past the 2008 credit crisis, contains additional analysis from Washington, D.C.-based policy analysis firm Capital Alpha Partners, LLC, breaks down the bill step-by-step into its four components covering clearing, trading, registration and reporting, outlines the potential impact of the legislation to the financial services industry, discusses which components of the bill will change or disappear and why and lays out a timeline for ultimate passage of the bill into law.
According to McPartland, the Pinpoint study can provide both an excellent point-of-entry overview as well as a detailed guide to the rather complicated issues. “Our goal at TABB was to clarify the intentions and the ramifications of the proposed law – the House version consists of more than 200 pages dealing specifically with OTC derivatives alone – and outlines the impact on the financial industry, including potential losers and winners.”
The visual presentations include:- US legislative process flow
- Derivative reform legislative overview
- Market participant designations per H.R. 4173
- ICE Trust US and ICE Clear Europe volume and open interest
- CME CDS Clearing volume and open interest
- SwapClear interest rate swap open interest/dealer notional outstanding
- CBOT interest rate swap futures open interest
- CME Clearport average daily volume (ADV)
The TABB Pinpoint study is available for download by TABB Group Derivatives Research Alliance clients and pre-qualified media at https://www.tabbgroup.com/Login.aspx.
For an executive summary or to purchase the report, please visit http://www.tabbgroup.com/PublicationDetail.aspx?PublicationID=550&MenuID=34&ParentMenuID=30&PageID=32, or write to info@tabbgroup.com.
