The problem is that the regulations, likely to come into force next year, are making OTC derivatives business less profitable, leading investment banks to focus on their largest clients or walk away from the business altogether.
This could leave smaller buy-side clients out in the cold or force them to trade products that may not be suited to their needs. However, it also opens opportunities for non-traditional players to fill the void.
Christian Lee, head of the clearing, risk and regulatory practice at consultancy Catalyst, said: “The new OTC derivatives regulations may have perverse and unintended consequences. The stark reality is that some banks are not seeing OTC derivatives clearing as a service they can make money out of.
This then reduces or eliminates choices for end users. By being driven out of the OTC market, end clients could actually be assuming more risk, which is the opposite of regulators’ intentions.”