The implementation of the 2010 Dodd-Frank Act is forcing many brokers and banks that trade swaps to consider migrating to an agency model.
Many privately traded derivatives, or swaps, will need to be traded through exchanges and cleared through central clearinghouses, according to Dow Jones Newswires. Market experts predict that around two-thirds of the market for these financial instruments will fall under these new regulations.
Financial institutions dealing these securities are expected to face stronger competition than ever, which is expected to empower end users and reduce profitability for dealers, the media outlet reports.
Since migrating these transactions to exchanges will make the dealer less important to the client, some financial institutions believe that utilizing an agency desk to provide clients with different options could help drive revenue, according to the media outlet. UBS plans to implement a system where customers place an order for a transaction with the dealer of their choice, who then finds the swap execution facility with the best terms for the deal.
Gary Gensler, the chairman of the U.S. Commodity Futures Trading Commission, stated on October 11 that implementing the new regulations governing the swaps market is crucial to improving transparency and managing the risk that is inherent to these financial transactions, Reuters reports.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis