It was only a few months ago that industrial companies started to lobby regulators over the use of clearing in over-the-counter derivatives.
They argued that their use of such instruments was for pure business hedging purposes, and complained that they were being swept up unfairly in regulatory reforms designed to clamp down on Wall Street and London’s OTC markets.
But why has it taken this long for the buyside’s voice to be heard, if pension funds and asset managers are equally big users of such instruments?
Guy Sears, director, wholesale at the UK Investment Management Association, says it has not helped that the businesses most immediately affected by reforms have been the clearing houses.
They have been busy figuring out how to cope with an expected wave of OTC derivatives that will be cleared. And there are the sellside banks, that will provide access to clearers as members of those clearing houses, and which already have a close client relationship with clearers.
It has taken a while for asset managers and pension funds to be noticed, with clearing houses only recently starting to strike up a dialogue with them on the issues.
Mr Sears says: “Maybe they discovered the clients behind their clients a little late but they are coming along.”
Now, however, there is greater awareness too at the European Commission – where regulations are being formulated – about the buyside’s concerns. That is partly the result of lobbying by companies.
Mr Sears adds: “The European Commission is well aware of the fact that they got quite a reaction off the corporates seeking exemptions and they’ve gone a step down that [road] and said ‘if the corporates get impacted, what’s going to happen to our savings pools?’”
But, Mr Sears says there are still huge uncertainties for clearers and sellside banks, regardless of how well-informed the buyside feels – and that is as much of an issue. “They are in the dark as well about what will be expected of them.”
“What’s it going to cost not to be in clearing? Basel [proposals for capital requirements] have yet to work that out. What will it cost to be in clearing? We don’t know that either, because the regulations are so wide the commercial [clearing] offerings are so unformed.
“For most of the clearing houses what it will cost at the end of the day, how much margin will need to be put up and the type of collateral – it’s all completely open still and that makes it very difficult for planning.”