With Sibos 2010 underway in Amsterdam, this year’s themes include regulation, rebuilding trust and recovery. And to that point, a noteworthy story came out of the first day of this year’s extravaganza. It seems in the midst of the ever-changing OTC derivatives landscape, there is a silver lining – for custodian banks that is. Even though they have until 2012 until new OTC derivative regulations are expected to go into effect, custodian banks are investing heavily now to ramp-up their current derivatives operations.
Why is this part of their current business strategy? It seems they are looking to capitalize on outsourcing and clearing opportunities as regulators require investors to become more transparent. This seems like a sensible and low-risk move for custodians since any revenues generated from new services and offerings will offset the minimal or lost revenues generated from OTC derivatives. Many of the big banks such as BNY Mellon Asset Servicing, JP Morgan Worldwide Securities Services, HSBC Securities Services, RBC Dexia, Northern Trust and State Street are well on their way to transforming their OTC middle-office services to provide end-to-end solutions that cover the entire life cycle of a transaction. By doing so, asset managers can outsource their middle-office derivatives processing functions such as collateral management and record keeping, without incurring costs and dealing with the headaches of conducting these processes in-house. Additionally, custodians are working to offer clearing solutions and services to both clearing houses and investor clients for the 80% of contracts that are expected to be standardized through centralized clearing as reported by The International Centre for Financial Regulation.
While this is the first of what will likely be many newsworthy stories I have seen come out of this year’s Sibos, it’s good to see that not all discussions dealing with OTC regulation are keeping in theme with the upcoming Halloween horrors.