Goldman formally announced yesterday its new OTC derivatives clearing unit – Derivatives Clearing Services. This is no real surprise as clearly the major dealers are getting ready to help their clients navigate the new, more complicated world. Further, I’m sure we’ll see similar announcements in the coming week from Goldman’s competitors.
This article looks into whether GS and the othesr will allow firms who compete in the execution space to send orders to them for clearing. As you can see from my comments it seems almost a no brainer that they must. Flow, wherever it comes from, adds to the bottom line.
Kevin McPartland, senior analyst at research firm TABB Group, said he believes more dealers will announce similar OTC clearing business models based on the new laws. “They’ll look at OTC as more of a cross-product business that wraps in with prime brokerage and execution.”
Some major dealers may even decide that diversifying their revenues by allowing smaller dealers as well as customers to clear trades through them will help to offset business that will be lost as a result of the new regulatory restrictions on bilateral, uncleared OTC trades. “The OTC clearing business is clearly going to be a lucrative one over time, so it’ll be all about capturing flow,” said McPartland.