IT Looks to Change Clearing Practices Ahead of Regulation

Even as Republicans and Democrats squabble over the form of new financial regulations , Wall Street is implementing technology changes. Its sure new central clearing requirements are on the horizon, including the possibility that banks will be required to publicly trade derivatives on exchanges.

Writes Wall Street and Technology:

Already, major banks have been working hard on building connectivity to the central counterparty clearinghouses (CCPs) for credit derivatives, anticipating that the federal regulation that eventually is passed will require central clearing to reduce counterparty risk and thus, systemic risk.

The changes required to comply with some of the proposals floating around are big and complex. "Once you start to change the way you trade and clear, it's a significant change," said Lloyd Altman, senior executive with Accenture's capital markets practice. He told Wall Street and Tech the impact of operational changes will hit the buy side harder than the sell side, which already has "infrastructure and connectivity in place." That means the buy side will either have to build its own solutions or avail itself of those offered by the sell side.

The current focus, it seems, is managing regulators' expectations.

"The industry is trying to take something that trades off-exchange and clear it through a central counterparty," says Tony Scianna, EVP of SunGard's brokerage and clearance unit. "To get them cleared is the first goal, and everybody is jumping on that. And then the regulators will be happy."