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Hedge Funds Over-the-Counter Derivatives

Hedge Funds Over-the-Counter Derivatives

1-in-4 Hedge Funds Clearing Over-the-Counter Derivatives

25% of hedge funds are clearing over-the-counter derivatives trades, according to a recent industry survey, a jump from zero hedge funds in October. The spike comes before new regulations come into effect later this year. The majority of interest-rate, credit-default and other types of swaps will have to go through a clearinghouse under the new rules.
Most interest-rate, credit-default and other swaps bought and sold by money managers will be required to be processed by a clearinghouse later this year under new U.S. regulations. UBS analysts led by Alex Cram in New York surveyed money managers to gauge how they’re reacting to the changes, following an initial survey in October, they said in a note to clients yesterday.

About 50 firms responded to the survey, Cram said in an e- mail. That would include 12 or 13 hedge funds, according to the percentage breakdown of respondents in the note.

“The results from the current survey seem to indicate an increasing level of urgency on the buy side around preparing for the clearing of OTC derivatives,” he wrote.

Congress last year mandated that most OTC derivatives trade on exchanges or similar electronic systems and be processed by clearinghouses after credit-default swaps contributed to the financial crisis. Clearinghouses increase stability in OTC derivatives markets as well as transparency for regulators.  Source

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