Starting next year, derivative trades such as interest rate swaps will be traded over central clearing houses. They are currently done as private transactions between two counterparties. To protect themselves from losses if a counterparty should not pay out their revenue responsibilities, the clearing houses will demand collateral. It is estimated that the collateral needed to cover these trades will increase by $2 trillion or 50% because many of these transactions are long term in nature. Several banks are poised to take advantage of the new business - JP Morgan, Northern Trust, State Street and BNP Paribas. There could be $2 billion in revenue at stake.
Already, there are several partnerships being agreed on to allow counterparties access to new assets and to optimize collateral at different firms. BNP Paribas Securities Services and Euroclear, the European securities warehouse that settles trades, are allowing their clients to use collateral at BNP to finance trades on Euroclear.
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