Dodd Frank and EMIR Unlikely to Reduce Systemic Risk, Says Industry

LONDON, December 5, 2011 -

New research from Rule Financial and Calypso reveals negative industry opinion of OTC reform

OTC clearing reform will not reduce systemic risk, according to 50% of market participants surveyed at a recent industry debate. Nevertheless, 79% have identified the need for collateral optimisation within their organisations, driven by regulatory changes on the horizon.

Attended by senior decision makers from top tier investment banks, custodians and asset managers - including c-level professionals and heads across IT, operations, risk and collateral management functions - there was broad agreement on the regulatory impact on transparency, with 74% stating that the new rules will increase transparency in the market.

However, in spite of the importance placed on collateral optimisation, only 26% of survey market participants said their firms have already centralised their collateral management systems, indicating that much work still needs to be done in this space. In addition, a further 62% of respondents do not expect their organisations to have fully optimised their collateral within the next 12 months.

Interestingly, 76% of survey respondents expect the mix of collateral in the market to move towards non-cash, while only 12% believe it will be purely cash-based, thereby highlighting the value of commodities such as gold as collateral.

David Field, Executive Director of Rule Financial, commented: “It is clear that the effectiveness of new OTC clearing reforms and the final set of rules that will come into effect are still open to debate. However, there is a general consensus across the investment banking community of the need to have an enterprise-wide view of collateral to ensure regulatory compliance and match collateral availability to obligations triggered by centralised clearing.”

He added: “A ‘magic circle’ of top tier banks is emerging, who are spending between £25-30 million a year on collateral management infrastructure. These institutions are ensuring that they are well equipped to not only cope with the upcoming regulatory changes but also to profit from them. Whilst there is a lot of detail in the rules that has yet to be clarified, the winners in this new regulatory landscape will be those making rapid decisions on how they will operate in the new world. The losers will be those left behind, still pondering.”

David Little, Director of Strategy and Business Development for securities finance and collateral management at Calypso, commented: “New regulations will see interesting assets coming through the door and on to the balance sheet, and there is an opportunity for market players to monetise that asset and profit from the impending reforms. However, with 38% of survey respondents saying their organisations are still undecided about what type of collateral optimisation software they might use, time is rapidly running out for those firms seeking to capitalise on the new collateral requirements as soon as they come into force.”

The findings:

• 44% believe that regulatory and market changes (e.g. Dodd Frank and EMIR) will reduce systemic risk while 6% were unsure of the regulatory impact
• 74% believe that these regulatory and market changes will increase transparency
• 12% of organisations have already achieved collateral optimisation, 26% expect to achieve it within 9 months, and 24% within 12 months - while 32% are uncertain when they will achieve collateral optimisation
• 76% expect the mix of collateral in the market to move towards non-cash; while 12% expect it will shift towards cash
• 26% have already centralised collateral management within their organisation; 32% plan to centralise next year; 32% are still undecided
• 79% have identified the need for collateral optimisation within their organisation; of which 38% are still undecided as to which software they will use, 26% will opt for custom-built, and 9% will select packaged software
• 26% of market participants anticipate their organisations will achieve collateral optimisation within the next year, while 12% believe they already have.
• The consensus from market participants surveyed is that collateral optimisation should cover interest rate derivatives, equity derivatives and credit default swaps (in that order), but of lesser importance are structured products and FX derivatives

The debate, ‘Collateral optimisation: are we nearly there yet?‘ was hosted by University College of London (UCL) and organised both by Rule Financial (an independent provider of business consultancy, IT consultancy and IT services to the global investment banking community) and Calypso ( a software provider of credit derivatives and cross asset trading).

For further information on collateral optimisation, please visit:

Rule Financial‘s website at:    www.rulefinancial.com/collateral

Calypso‘s website at:        www.calypso.com/solutions/collateral-optimisation.php

Notes to editors
All figures, unless otherwise stated, are from Rule Financial and Calypso. Total sample size was 34 respondents and the survey was conducted on 15^th November 2011 at the industry debate, ‘Collateral optimisation: are we nearly there yet?’ held at University College of London (UCL). The figures are representative of capital market participants affected by OTC clearing reform.

About Rule Financial
Rule Financial is a leading independent provider of business and IT services, employing over 350 people in the UK, the USA, Spain and Poland. Its specialists work alongside their counterparts at the world’s leading investment banks, hedge funds and financial institutions, helping to lower costs, improve productivity and extract the maximum value from IT investments.

Covering all aspects of advisory, execution and support services, Rule Financial’s domain specialisms include: Securities Finance, Prime Services, Risk Management, Trading, Legal & Compliance and Operations. Its delivery specialisms include: advisory and execution services in system development, user-centric design, software development, integration, testing, on-going support and IT outsourcing.

About Calypso Technology Inc.
Calypso Technology is a premier global capital markets platform provider, serving financial institutions of all types with a full range of integral cross-asset front-to-back office solutions for treasury and derivatives including trading, risk, processing, clearing, collateral, cash management, liquidity, accounting and reporting. The Calypso platform is steadily emerging as a global standard for capital markets businesses and serves as an ideal foundation for innovation and future growth.

Calypso has over 130 clients in over 40 countries - including banks, central banks, sovereign funds, asset managers, insurers, hedge funds, prime brokers, exchanges, clearing houses, processing services and other service providers. Calypso is committed to industry-renowned levels of customer service, research, development and innovation. The company has over 550 employees and 15 offices globally including 5 development centers. “Calypso” is a registered trademark of Calypso Technology, Inc. in the United States, the European Union and other jurisdictions.

For more information about Rule Financial please contact:
Mapara Fernandez
email:    rule@hotwirepr.com
tel:    +44(0)20-7608-4687
web:    www.rulefinancial.com

For more information about Calypso Technology Inc. please contact:
Paul Bowhay / Charlie Morrow (Cognito Europe)
email:    calypso@cognitomedia.com
tel:    +44(0)20-7438-1100

Binna Kim / Renee Sieli (Cognito US)
tel:    +1-646-395-6300
web:    www.calypso.com

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