Treasurers wondering why investors are so grumpy these days may find the mood stems from a self-inflicted wound. According to a new Greenwich Associates survey of portfolio managers and traders (“US Fixed-Income Market Forecast: Cloud with Silver Linings”), 80 percent of the respondents say regulations are their biggest market concern.
Why? Because they did not prepare for central clearing until the last minute, leaving them at the mercy of clearinghouse members who have jacked up the price of access.
The traders and portfolio managers said their biggest central clearing worries are the potential for disruptions during the transition period and potentially higher fees and margin costs. Greenwich says these are short term issues. However, the implementation of Swap Execution Facilities will cause longer term headaches by forcing traders to work with more platforms to safeguard liquidity, further shortening the menu for interdealer brokers and tipping the decades-old “man versus machine” trading tug of war more in favor of the latter.
Greenwich officials say that the upside to the change will offset the downside, even for the clearing laggards most in danger. Small and mid-sized asset managers should have better access to liquidity and service. And, overall, tighter spreads and more liquidity will benefit everyone.