In an interview with Euromoney Sibos Insider, Alan Cameron, head of client segment – broker dealers and investment banks at BNP Paribas Securities Services, says that while it is good that there should be so many clearing houses to spread risk, much of the glut is due to regulators, as well as clearers’ desire to catch all the value in a transaction.
“People have been talking about consolidation for as long as I’ve been in this business, but we just aren’t seeing it happening,” says Cameron. “If anything, we’ve actually seen the number of clearing houses increase.”
For years the talk surrounding clearing houses has been of consolidation, especially following the change in regulation across the US and Europe forcing all over-the-counter derivatives to be cleared via a central counterparty clearer. It would also bring simplicity to the clearing process, allowing deals to be cleared through a single institution regardless of factors such as geography.
“What we have now is a headache to work with. Clearing houses are obviously a good thing – they allow third party clearing in a broader range of products, and act to spread risk in deals, but the number of them that exist at the moment makes the process very confusing,” says Cameron.
Regulators also seem to like the idea of clearing houses being based in their own jurisdictions. Indeed, at Sibos’s opening plenary on Monday, Tim Lane, deputy governor of the Bank of Canada, called for the opening of a Canadian clearing house.
Cameron explains that a big reason for the lack of consolidation is the fact that clearing houses tend to operate in partnership with other financial institutions: “Some clearing houses act as parts of silos, operating in conjunction with institutions that facilitate other parts of the transaction process. This allows one group to deal with all stages of the process, allowing for a greater financial gain for the group – they can make more money if they can deal with every leg of the transaction.”
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