Abstract

A recently proposed Futures Industry Association (FIA) European Trustee Model (EATM) to facilitate client clearing in European jurisdictions indicates the industry’s desire to improve clearing brokers’ profitability and facilitate access to clearing for derivatives end-users. At the same time, upcoming Basel 3.1 changes (also known as Basel IV) and, in the United States (US), Basel III ‘Endgame’ proposals, if implemented without amendments, will significantly increase costs of providing access to clearing for both European banks and US-based Globally Systemically Important Banks (G-SIBs) affiliated Futures Commission Merchants (FCMs).

Although the US final rules are yet to be finalised, the emerging picture suggests that clearing access is likely to become more expensive. Mid-tier banks and broker-dealers may benefit from accessing the Central Counterparty Clearing Houses (CCPs) directly and, in some cases, also from becoming FCMs to compete with established G-SIB affiliated FCMs for client business.