A worrying trend

Nomura Abandons Swaps Clearing for US and European Clients

Regulatory uncertainty prompts another major investment bank to leave swaps clearing until clarity returns to the market

Nomura has become the latest mid-tier investment bank to abandon a key part of its derivatives services for customers in Europe and the US. The reason why the bank has made the strategic decision are the delays to incoming regulations in both regions.

Tuesday was the last day in which clients of the Japanese bank were able to clear their over-the-counter swap deals. The change also reflects the small market share of Nomura outside of Japan.

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Evolving and uncertain regulatory and market environment associated with OTC client clearing

During the past year a number of other financial institutions have left the business with BNY Mellon, Royal Bank of Scotland and State Street all stressing that the costs associated with the business have not justified their market presence.

The regulatory effort which mandated clearing of OTC derivatives trades aimed to resolve any complications if one of the counterparties faces a default. As the new rules kicked in profit margins for investment banks have materially decreased while costs spiraled out of control.

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Elevated capital requirements, as well as operational costs have led to smaller players getting squeezed out of the market. The European regulations are not yet finalized and are not synchronized with the U.S. regulatory requirements.

The market share of the top five bank clearers has amounted to 70 percent

An official statement issued by the bank on the matter clarified its decision, “Due to the evolving and uncertain regulatory and market environment associated with OTC client clearing, we are exiting the OTC derivatives client clearing businesses in the Americas and EMEA.”

The Japanese investment bank will instead be focusing on trading OTC derivatives and exchange-traded futures.

The market share of the top five bank clearers has amounted to 70 percent according to publicly available data published monthly by the U.S. Commodity Futures Trading Commission.

Nomura held $26 million in client collateral deposits to cover the trades of its customers. This compared with $12 billion for Credit Suisse, which holds the top spot amongst swaps clearers.

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