DERIVATIVES DEALERS HAVE grown resigned to stormy markets and pressures on profitability. At many desks, balance sheet has been cut and revenues are flat. Critically, many markets are suffering extended periods of illiquidity, punctuated by short-lived bursts of abundance. Deal flow swings between feast and famine. The direction of travel for derivatives regulation is towards central clearing, but key aspects remain unresolved, creating uncertainty and threatening to increase dealers’ and end-users’ costs. Previously solid sovereign credits are threatened by downgrade and even default. In turn, the focus is on credit value adjustment and the pricing of uncollateralized derivatives trades – new and legacy. In the background, a proliferation of interdealer trading platforms is subtly altering the marketplace in interest rate swaps (IRS), and inflation and interest rate options.
In this turbulent environment, which dealers are leading...
