One of the chiefs at the derivatives data, processing and technology group SuperDerivatives has warned regulators that not all derivatives across all asset classes can be cleared through a central counterparty (CCP) and could therefore be detrimental to the market, if enforced.
It has long been clear to us that markets need the flexibility which bespoke derivatives instruments deliver, says Zohar Hod, Head of Americas at SuperDerivatives. Regulations that limit flexibility impair organisations ability to hedge effectively, and could therefore have an adverse effect on the market.
The comments follow the European Securities and Markets Authority (ESMA) chairman Steven Maijoors comments that not all bespoke derivatives can be traded on an exchange, and that regulators should not shoe horn the sector into a stock market structure, when speaking at last weeks International Derivatives and Swaps Association (ISDA) conference in Prague.
Conceptually the notion of a central clearing house for all derivatives trades is the logical next step to instilling transparency and liquidity in the industry, says Hod. However, in practice the investment required in the people and infrastructure required to efficiently handle bespoke complex derivatives still remains a significant barrier to progress.
SuperDerivatives currently services all major traded derivative classes including foreign currency, interest rates, equities, commodities, energy and credit and provides prices that reflect the interdealer market, through a combination of unbiased, aggregated market data and sophisticated modelling techniques.
Hod says that legislation to bring greater oversight to the OTC derivatives market must take into account the differences between the various products used and their specific functions and ensure the investment in the necessary resources is made prior to any legislative change.