Dodd-Frank to hit swap-dealer profits, TABB Group study shows

21 October 2011

The majority of swap-dealers expect their profits to either stay flat or fall after the implementation of Dodd-Frank, a study has revealed.

According to the TABB Group’s ‘Credit and Rates Swaps Dealers 2011: Redefined and Reborn survey’, almost 90 per cent of top-tier and two-thirds of middle-tier dealers believe legislation will impact their profits.

Nearly two-thirds of survey participants said that new legislation will increase barriers-to-entry as margins fall and regulation increases.

A similar proportion of swap dealers stated that they expect Basel III to have a bigger impact than Dodd-Frank as it affects each financial institution’s “capacity to fund their swaps trading desk by defining the maximum leverage allowed”.

Kevin McPartland, Tabb Group's director of fixed income research, said: “But at the bank level, Basel III’s impact would be far greater, that if billions in assets were suddenly untouchable, their business make-up and bottom-line profitability will be affected.”

Further findings were more positive with almost three-quarters of swap dealers saying that Dodd-Frank will boost liquidity in the long term.

This will be through greater market participation, product standardisation and electronic trading access.

By Jim Ottewill

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