BNY Mellon experts and the University of Cambridge Judge Business School did a deep dive on over-the-counter (OTC) reforms and their impact on Sovereign Wealth Funds (SWFs).
Regulatory changes to the OTC derivatives market require SWFs and other asset owners to reconsider their existing approaches to how they trade and clear these instruments. But, as highlighted [in Section 3 of the full report], the OTC derivatives markets reforms are part of a wider, interconnected picture. While many of these other post-crisis reforms only impact SWFs indirectly, in total they represent a reshaping of the financial markets which presents significant challenges and opportunities to all asset owners.
As such, this section summarises the key considerations when choosing a future clearing model, and also offers some further suggestions for how the investment strategies and operations of SWF and other asset owners may evolve for optimal returns in an ever-changing world.
Our research does not make specific recommendations, because the optimal clearing model depends on the characteristics of each asset owner. Moreover, some potential changes in OTC derivative regulations remain uncertain. As such, below we offer a framework to help determine the optimal clearing model:
Post-crisis financial reforms have had a much larger impact on market structure operators and service providers than on asset owners such as SWFs. But that does not mean large institutional investors should leave their banks and other service providers exclusively to implement and manage the new regulatory requirements. All asset owners will have their own investment priorities and risk appetite, informed by their own set of unique circumstances. However, the scale of change in the financial markets is such that an increasing number of SWFs are already reviewing their policies and procedures in light of emerging opportunities.
Lays out the cost-benefit analysis of SWFs options for OTC derivative clearing, touching also on broader strategic counterparty implications
This content is part of BNY Mellon’s Focus on Regulation Readiness, a dedicated section on bnymellon.com that showcases regulatory and policy related content. BNY Mellon understands the regulatory realities and can help you keep pace with the changing environment. Learn More
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may be used as a generic term to reference the corporation as a whole and/or its various subsidiaries generally. This material and any products and services may be issued or provided under various brand names in various countries by duly authorised and regulated subsidiaries, affiliates, and joint ventures of BNY Mellon, which may include any of the following. The Bank of New York Mellon, at 225 Liberty Street, New York, New York 10286 USA, a banking corporation organised pursuant to the laws of the State of New York, and operating in England through its branch at One Canada Square, London E14 5AL, England, registered in England and Wales with numbers FC005522 and BR000818. The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the US Federal Reserve and authorised by the Prudential Regulation Authority. The Bank of New York Mellon, London Branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request. The Bank of New York Mellon SA/NV, a Belgian public limited liability company, with company number 0806.743.159, whose registered office is at 46 Rue Montoyerstraat, B-1000 Brussels, Belgium, authorised and regulated as a significant credit institution by the European Central Bank (ECB), under the prudential supervision of the National Bank of Belgium (NBB) and under the supervision of the Belgian Financial Services and Markets Authority (FSMA) for conduct of business rules, and a subsidiary of The Bank of New York Mellon. The Bank of New York Mellon SA/NV operates in England through its branch at 160 Queen Victoria Street, London EC4V 4LA and is registered in England and Wales with numbers FC029379 and BR014361. The Bank of New York Mellon SA/NV (London Branch) is authorised by the ECB and subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority. Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request. The Bank of New York Mellon SA/NV, operating in Ireland through its branch at 4th Floor Hanover Building, Windmill Lane, Dublin 2, Ireland, trading as The Bank of New York Mellon SA/NV, Dublin Branch, authorised by the ECB and registered with the Companies Registration Office in Ireland No. 907126 & with VAT No. IE 9578054E. If this material is distributed in, or from, the Dubai International Financial Centre (“DIFC”), it is communicated by The Bank of New York Mellon, DIFC Branch, regulated by the DFSA and located at DIFC, The Exchange Building 5 North, Level 6, Room 601, P.O. Box 506723, Dubai, UAE, on behalf of The Bank of New York Mellon, which is a wholly-owned subsidiary of The Bank of New York Mellon Corporation. This material is intended for Professional Clients only and no other person should act upon it. The Bank of New York Mellon, Singapore Branch, subject to regulation by the Monetary Authority of Singapore. The Bank of New York Mellon, Hong Kong Branch, subject to regulation by the Hong Kong Monetary Authority and the Securities & Futures Commission of Hong Kong. If this material is distributed in Japan, it is distributed by The Bank of New York Mellon Securities Company Japan Ltd, as intermediary for The Bank of New York Mellon. Not all products and services are offered in all countries.
Material contained within this document is intended for the purpose of information only. It is not intended to provide professional counsel or investment advice on any matter, and is not to be used as such; you should obtain your own independent professional advice (including financial, tax and legal advice). The views expressed within this document are those of the contributors only and not those of The Bank of New York Mellon or any of its affiliates or subsidiaries (the “Bank”), and no representation is made as to the accuracy, completeness, timeliness, merchantability or fitness for a specific purpose of the information provided in this presentation. No statement or expression is an offer or solicitation to buy or sell any products or services mentioned. The Bank assumes no liability whatsoever for any action taken in reliance on the information contained herein, or for direct or indirect damages or losses resulting from use of this document, its content, or services. Past performance is not indicative, nor a guarantee, of future results. The contents of this document may not be comprehensive or up-to-date, and the Bank will not be responsible for updating any information contained herein. This document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. Any unauthorised use of information contained in this document is at the user’s own risk and any reproduction, distribution, republication and retransmission is prohibited unless the prior consent of the Bank has been obtained.
© 2016 The Bank of New York Mellon Corporation. All rights reserved.</div