New OTC regulation drives collateral scarcity for the $700 trillion derivatives market

03 Jul 2012 News alert

TABB Group has released a report on the challenges caused by OTC derivatives reforms, which according to TABB principal Alex Tabb means that “the industry has no choice other than to quickly become collateral smart”.

Evolving regulations, such as the Dodd-Frank Act in the US and the European Market Infrastructure Regulation (EMIR), will bring significant structural changes across the $700 trillion OTC derivatives market when transitioning to a more electronically traded and centrally cleared environment. These changes include a multi-trillion dollar collateral shortfall for cleared and un-cleared swaps.

The report “Optimizing Collateral: In Search of a Margin Oasis” is based on in-depth interviews with swaps market participants, clearinghouses (CCPs) and technology vendors. It examines the impacts of new regulation on collateral, as well as potential technological and service solutions that participants need to help manage the approaching market paradigm shift.

Being the leading provider to the exchange and clearing industry, we’re closely following the evolving regulations so that we can provide our customers with flexible technology prepared for current and future regulatory requirements,” says Javier Tordable, CEO of Cinnober. “Efficient collateral management will be a success factor – if not a matter of survival – for the OTC derivatives participants and the CCPs aiming to offer swaps clearing.

One conclusion from the TABB Group interviews was that market participants had assumed that the collateral shortfall could be handled through collateral transformation services. However, Alex Tabb concludes in his report that for swaps market participants to succeed in this new environment they will also need collateral optimization technology to gain the collateral necessary to support their trading activities.

From a technological standpoint, collateral optimization requires extremely sophisticated technology to identify, prioritize and deliver the lowest cost, mutually acceptable collateral that may have previously been in operationally and geographically separate silos.

The interviews also showed that CCPs recognize that they will need to offer innovative, flexible and more complex services to their clients for minimizing margin requirements.

Cinnober supports the conclusion that efficient collateral management calls for new and innovative technology,” Tordable of Cinnober concludes. “Our clearing offering today provides CCPs with market-leading advanced risk and collateral management. We’re working intensely with our customers to enhance and extend the collateral services that we see as vital for the clearing organizations of tomorrow.

The full report from TABB Group is available through Cinnober Financial Technology. Please e-mail to secure your copy.

About TABB Group
With offices in New York, London and expanding across the Asia-Pacific region, TABB Group is the financial industry’s only strategic advisory and research firm focused solely on capital markets, based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb.  For more information, visit  In January 2010, TABB launched TabbFORUM, the online global capital markets community covering opinions and analyses on current industry issues, tracked daily by over 12,000 industry professionals.   

About Cinnober Financial Technology AB
Cinnober provides mission-critical solutions and services to leading trading and clearing venues. Cinnober’s solutions are based on the TRADExpress™ Platform incorporating everything needed for mission-critical solutions in terms of performance, robustness and flexibility. The portfolio of offerings includes price discovery and matching, real-time risk management, clearing and settlement, index calculation, data distribution and surveillance. Cinnober’s customers include Alpha Exchange, Borsa Italiana, BM&FBOVESPA, Burgundy, Chicago Board Options Exchange, Deutsche Börse, Eurex, Hong Kong Mercantile Exchange, London Metal Exchange, Markit BOAT, NYSE Liffe, Stock Exchange of Thailand and Quadriserv. For additional information, please visit