The Futurization of OTC: Full-Steam Ahead on Dodd-Frank

Exchange Operators Looking at Big Business Opportunity

As Basel III and Dodd-Frank financial reform takes effect, global banks' quest for capital efficiency will continue to drive more derivatives transactions to centralized clearing and result in a boon for exchange and clearing house operators, industry consultant Mayra Rodriguez Valladares said.

The implications for big U.S.-based banks "could not be clearer," Valladares said in a new report. Higher capital requirements under Basel III "are here to stay." Banks will thus be focused on ways to reduce capital requirements, which can be done by transacting derivatives with central counterparties.

In recent months, CME Group and other exchange operators noted increasing bank activity in futures contracts or futures-like products, "something that would have been unimaginable a few years ago." But only about 4% of the top 25 U.S. banks went through exchanges for derivatives transactions as of the second quarter, a percentage that's sure to climb.

Given this low percentage, clearinghouses and exchanges "are looking at a big business opportunity as banks increasingly comply with Dodd-Frank," she said. Valladares, a CME Group featured contributor, is managing principal with MRV Associates, a New York based capital markets and financial regulatory consulting firm.

Futures & Options Trading

As the world's leading and most diverse derivatives marketplace, CME Group is where the world comes to manage risk. CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate. CME Group brings buyers and sellers together through the CME Globex electronic trading platform and trading facilities in New York and Chicago. CME Group also operates CME Clearing, one of the largest central counterparty clearing services in the world, which provides clearing and settlement services for exchange-traded contracts, as well as for over-the-counter derivatives transactions through CME ClearPort.

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CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX, and COMEX.