OTC to CCP

OTC to CCP - the regulatory derivatives revolution is about to arrive with a bang.

In the next few months the CFTC and SEC will release new rules that will shape the world's derivative markets for years to come. The worlds derivatives markets are holding their collective breath to see how the markets will react and evolve in response to what is the greatest revolution in derivatives trading since the introduction of the 'interest rate swap'.

Clearing houses are working hard behind the scenes to prepare themselves to offer products in anticipation of which derivatives will have a 'mandatorily cleared' tag on them. Derivative end users themselves are slowly realising that the relationships with their dealers will be unrecognisable after the new regulation is introduced.

So what should a casual blogger with a unique window into the world of derivatives and risk management say in a blog?

Prepare. And prepare with a chaotic theme in mind.

No one can confidently predict where these rules will be pitched and what their ultimate effect will be on the market. Over the coming year, the derivatives market will descend into a state of orderly anarchy. SEF's will fight it out, as will CCPs. Open interest will ebb and flow. The winners will slowly rise to the surface and will probably be evident come this time next year. They will also be those with experience and those with a sound operational record. As Graeme McDowell will tell you, the cream always rises to the top, even when the hopes of an entire continent are resting on a single man's shoulders. If you want a prediction, follow the talent,

Happy hunting,
Andy