It looks like the Treasury wants to throw down with the bespoke derivatives clan. Riding the wave of structured product tar and feathering, the Treasury believes it has found the solution to curbing the issuance of customized derivatives- which would naturally make the world a better place.
Through higher capital requirements and higher margin requirements for non-standardised derivatives, the legislation will encourage substantially greater use of standardised derivatives and thereby will facilitate substantial migration of OTC derivatives onto central clearing houses and exchanges," says the Treasury
Before they start lighting up the Cohibas and patting themselves on the back for a job well done, the masterminds behind the plan to increase the cost of doing bespoke business may want to reconsider what they've done. Faced with mounting pressure to become profitable without reducing headcount by 50% every 3 months, banks are now being told that if they still want to make large chunks of change on bespoke transactions, they better come up with clever ways to circumvent new capital and margin requirements. The Treasury can thank themselves for the next evolutionary step in structured products antics.
Move to curb non-standard OTCs [FT]