| NEW YORK, April 12
NEW YORK, April 12 Asset managers have been slow
to set up accounts with clearing houses for over-the-counter
derivatives ahead of a mandatory deadline, creating a nearly
unmanageable backlog that could leave many firms unable to
trade, industry participants said.
There are around 250 to 300 U.S. investment managers that
have to begin clearing swaps transactions by June 10, said Peter
Barsoom, chief operating officer of IntercontinentalExchange's
ICE Clear Credit.
"The number of firms that have already set up accounts at
the clearing house is a paltry sum compared to that 250," he
said, speaking at a Futures Industry Association conference in
New York on Thursday.
Regulators have taken steps to overhaul the opaque $650
trillion swaps market, which critics said exacerbated the global
financial crisis in 2008. The reforms affect a wide variety of
financial contracts that have traditionally changed hands in
bilateral deals largely out of the sight of regulators.
Now multiple parties will be involved, as large parts of the
swaps markets move to exchange-like platforms and run through
clearing-houses that take on the risk of counterparty default.
Swap dealers and the largest hedge funds began clearing most
of their interest rate and credit default index swaps on March
Other investment managers must begin clearing by June 10,
while accounts managed by third party investment managers and
private pension plans have until Sept. 9. The majority of U.S.
investment advisers fall into the second category.
Barsoom said ICE has been hearing that some investment firms
have been caught up in legal documentation of the process,
leading to delays in setting up operational accounts.
"I am very concerned, knowing how quick lawyers are, there
is not going to be enough time," he said, adding that ICE may
reach out to the firms involved to ask them to begin to set up
accounts even if their legal discussions are not yet complete.
NOT ENOUGH TIME
Operationally, investment managers have to sign deals with
technology providers in order to connect with multiple futures
commission merchants (FCMs) that execute swaps, as well as
central counterparties (CCPs), such as ICE, CME Group,
Some firms are hesitant set up operational accounts before
finishing the legal process because 11th-hour changes in legal
negotiations can impact the operations agreements, said David
Olsen, who co-heads of futures and options, OTC derivatives and
securities clearing at J.P. Morgan Securities.
"There are some switching costs and some potential
throw-away hours, but I would agree in spirit that there are too
many funds and not enough days left to get it done," he said.
The large number of firms that need to begin clearing in
June is also a "large logistical concern" for Barclays,
which is asking its clients who are able to go live before the
deadline to do so to help ease the burden, said Raymond Kahn, a
managing director at the bank.
Amy Caruso, a director at Babson Capital Management, which
manages over $160 billion, said that while her firm was well
underway with its preparations to begin clearing, the process
"is not just not very customer friendly."
There are many aspects other than documentation that firms
should think about, said Cassandra Tok, vice president,
derivatives clearing services, at Goldman Sachs.
"June 10 is not the date that everybody should be aiming for,
you should be aiming to be ready way before June 10."