It’s clearly all about clearing
We are living in a time where the only rule is, that there are no rules. In actual fact, I would go a step further and suggest that during times of upheaval such as that which we are currently experiencing the rule book actually gets re-written. Currently, the post trade space is the epitome of this theory, particularly when it comes to CCPs. With the mandating of central clearing seeming to be policymakers preferred route to mitigating credit and counterparty risk, CCPs are beginning to look at new ways to expand their membership community. Stories have recently surfaced that some CCPs may extend lite membership to sovereigns, whereby they will not be obliged to collateralise their exposures and therefore will not be required to post initial margin. This is based on the notion that sovereigns are 100% creditworthy an assumption which has come into question of late. Whether CCPs do end up extending their membership is almost irrelevant. The interesting point here is that this story indicates that the rulebook may be rewritten, alternative models are possible and the way that CCPs behave could change. Currently, all CCPs apply one set of rules to all their direct customers those rules are onerous and therefore only a few large and well capitalised firms qualify. There is a possibility that different membership tiers may emerge where the participation terms may be softened. If so, there could come a point at which buy-side firms and corporates could become lite CCP members. Certainly, there is general momentum in the securities industry to push clearing services to the buy-side. My eyes nearly popped out of head when I noticed the annual remuneration package of 400k for a position at a major brokerage in Clearing Sales for UK institutional clients. Historically, these are the types of packages offered to traders and investment bankers, not the salesmen of post trade services.Times of crisis can create pain and misery for many, but for some, an opportunity is created. Right now, central clearing is the place to be.
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