Despite the fact corporate end users are taking the changing regulatory landscape in stride, the dealers that service them are anything but complacent.
Dealers trading bilaterally with corporations exempt from Dodd-Frank trading and clearing mandates face a higher cost of capital than those putting on trades for clearing clients. Swaps clients with directional positions and limited trades have proven quite unprofitable for the clearing banks.
In the current environment, it costs derivatives dealers more to service corporate treasuries, causing some banks to pass these new costs down to the client or cut back their focus on corporate customers.
Eventually, as interest rates begin to rise and Basel III makes its mark on dealer-provided pricing and service, a move away from bilateral transactions seems all but inevitable.
Methodology
Between September and November of 2014, Greenwich Associates conducted in-person interviews with 369 top-tier users of interest-rate derivatives at large corporations and financial institutions in North America, Latin America, Europe, Asia, Australia, and Japan. To be considered top-tier, a firm must meet one of the following criteria: be a fund manager, hedge fund, central bank, retail aggregator, Fortune Global 500 firm, or treasury center; or have reported trading volume of more than $10 billion; or have sales of more than $5 billion.
The data reported in this document reflect solely the views reported to Greenwich Associates by the research participants. Interviewees may be asked about their use of and demand for financial products and services and about investment practices in relevant financial markets. Greenwich Associates compiles the data received, conducts statistical analysis and reviews for presentation purposes in order to produce the final results. Unless otherwise indicated, any opinions or market observations made are strictly our own.
© 2015 Greenwich Associates, LLC. Javelin Strategy & Research is a division of Greenwich Associates. All rights reserved. No portion of these materials may be copied, reproduced, distributed or transmitted, electronically or otherwise, to external parties or publicly without the permission of Greenwich Associates, LLC. Greenwich Associates®, Competitive Challenges®, Greenwich Quality Index®, Greenwich ACCESS™, Greenwich AIM™ and Greenwich Reports® are registered marks of Greenwich Associates, LLC. Greenwich Associates may also have rights in certain other marks used in these materials.