A level of standardisation will emerge as clearing houses with global reach establish regional entity tie-ins with clearinghouses in the rest of the world, TABB Group research has found.
Radi Khasawnesh, the Group’s research analyst and author of the new report, explains that as clearing has become the main priority for buy-side firms trading in fixed income, there is now a bifurcation between clearing houses with global reach and those with a domestic focus.
He points out that this domestic focus can lead to a natural domestic bias, specifically for European entities that have the widest universe of accepted collateral.
Global efforts to increase fixed-income trading regulation have thus increased regionalisation in the handling of collateral.
The report, 'Global Collateral Standards 2014: Breaking Through Regional Silos', highlights an expected trend towards the voluntary standardisation of fragmented collateral by clearing houses.
This standardisation is happening on the modelling side.
The study involved the comparison of current and expected treatment and acceptability of collateral by region and entity, based on the public disclosures of 12 clearing houses regarding acceptable collateral, margin treatment and risk modelling.
Khasawnesh says this process has led him to believe that there is now a distinct divergence between global and domestic clearing houses, given the disproportionate levels of focus towards their respective regions.
This discrepancy in focus can lead to domestic bias amongst those clearing houses with a domestic, rather than global, reach, he argues.
The report includes graphically represented data based on published margin schedules and methodologies, as well as margin circulars and risk calculators.