The first-order effect of the global effort to increase regulation of fixed-income trading has been to increase regionalisation in the treatment of collateral at European and US clearinghouses, according to fixed income research conducted by TABB Group.
Clearing has become the main focus for buy-side firms trading fixed income across the global financial centres.
According to Radi Khasawneh, research analyst for TABB and author of the research paper, there is now bifurcation between clearinghouses with global reach and those with a domestic focus.
However, this domestic focus can lead to a natural domestic bias, specifically for European entities that have the widest universe of accepted collateral.
Khasawneh said that as clearinghouses with global reach establish regional entity tie-ins with clearinghouses in the rest of the world, a level of standardisation will emerge, which is already happening on the modelling side.
He added: “This will eventually lead to a shift to voluntary rather than mandatory normalisation of the current fragmented environment. We believe that many clearinghouses in the rest of the world will have to loosen the restrictions on collateral accepted from international accounts.”
