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Japanese Banks Focused on Operationally Readiness for OTC Client Clearing

Calypso Technology Inc., the leading integrated capital markets software provider, has announced the results of a survey on OTC clearing conducted at its recent Japanese Market Forum 2013 in Tokyo. The survey revealed that 80% of respondents are working on achieving operationally readiness for OTC clearing in Japan. 20% are already operationally ready, even though it is not mandated.

More than 130 attendees from leading Japanese banks, broker dealers, asset managers, insurance firms and financial services providers attended the one-day event. The forum featured an update from Takeshi Hirano, Director, Strategic Planning Head, OTC Derivatives Clearing Service, Japan Securities Clearing Corporation (JSCC) on the current status of and future developments in Japanese clearing. Additionally, the event featured a presentation on leading edge OTC clearing technology and a panel discussion moderated by Takehiro Hosomura, Deputy Director, OTC Derivatives Clearing Service, JSCC, with senior industry practitioners from both the buy-side and sell-side discussing the new requirements driven by OTC clearing.

It is expected that OTC client clearing will be mandated within 2014 in Japan, whereas in the United States, the majority of derivatives end users were required by the Dodd-Frank Act to clear OTC derivatives beginning June 10th 2013. In a survey of attendees, participants shared their concerns and plans to implement an OTC clearing infrastructure and strategy in Japan. Of note, 20% of the survey respondents are currently operationally ready for OTC clearing. More than 50% of those firms are actively searching for a new system to help them with operational compliance.

In contrast, more than 70% of derivatives end users in the USA and Europe state that operational challenges in OTC clearing are no longer the biggest sticking point, according to a report by research firm Finadium, entitled, “Large OTC Derivatives End-Users on Clearing and Collateral: A Finadium Survey.”

“OTC clearing can impose significant strains on existing derivatives systems,” states Sanela Hodzic, Managing Director, Strategy and Marketing at Calypso Technology. “It’s a paradigm shift in derivatives management. Firms have to develop new processes and technology for managing connectivity, margining, collateral management and regulatory reporting requirements.”

In the survey, over 50% of respondents revealed concerns that collateral management/collateral optimization will impact their business profitability once OTC client clearing becomes a reality. “The urgency of collateral management is felt more gradually than the need to clear trades, as underlying investors and portfolio managers begin to see the direct cost of collateral impacts to their returns,” states Josh Galper, Managing Principal at Finadium.

Conference attendees were also polled on how they would select clearing brokers. The majority (61%) of respondents highlighted that breadth of services was the most important attribute when selecting a CCP partner. In terms of the most valuable clearing services, operational support around connectivity (46%) and risk and margin management (22%) topped the list.

“The survey confirms that the Japanese market is well aware of the client clearing challenges ahead. Clearing firms recognize the need to implement solutions to support new stringent compliance requirements such as the 60-second limit checking rule,” concludes Hodzic. “Calypso is breaking new ground in this space, ensuring that our clients around the world are equipped with the tools and processes they need to optimize collateral in light of new clearing requirements.”