Despite MF Global, firms face weaker OTC safeguards
In bilateral over-the-counter trades, some buy-side firms insist on physical segregation of their collateral – their assets are placed with a third-party custodian. But the incoming US regime will not provide the same degree of protection, despite the risks exposed by the collapse of MF Global
The introduction of central clearing for over-the-counter derivatives has been sold as a way of making the market safer. But this claim is now being questioned by some buy-side firms, which say their collateral is better-protected today than it will be under segregation rules endorsed by the Commodity Futures Trading Commission (CFTC) in January. It is not clear, however, that they will be able to get the protection they want – even if they are willing to pay for it.
The CFTC rules are a
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