Nearly nine out of ten top-tier swap dealers and two-thirds of mid-tier swap dealers say they expect profits to remain flat or decline a year on from Dodd-Frank, according to the latest report from TABB Group.
Yet TABB says dealers still remain supportive of swaps clearing, regardless of the cost and complexities involved in switching from an OTC to a largely cleared market. Although lobbying will continue and politics persist, dealers see the advantages of a mostly cleared swaps market, says Kevin McPartland, a TABB principal and author of the report.
In the long term, nearly 75% of swap dealers believe liquidity will improve due to increased market participation, further product standardization and electronic trading access, according to the report. However, nearly 60% of current dealers believe barriers to entry will increase and most doubted the rationale for new dealers to enter a market with slim margins and increasing regulation.
Furthermore, nearly 60% of the swap dealers interviewed believe Basel III will have a bigger impact on their businesses than Dodd-Frank. While Basel III doesnt dictate how a swap must be executed, it does impact each banks capacity to fund their swaps trading desk by defining the maximum leverage allowed, TABB says.
(CG)