Operational, compliance and implementation costs stemming from regulatory change are likely to be passed on to end-users, attendees heard at the Swiss Futures and Options Association's 33rd Bürgenstock meeting in Interlaken today.
Fabien Carruzzo, associate at Kramer Levin Naftalis & Frankel said, "The cost of compliance is going to be enormous." He added real-time trade reporting rules, the process of connecting to swap execution facilities and the building of new infrastructure are going result in significant costs for the industry, which may be passed on to end-users.
Carruzzo said if an end-user wants to clear with a clearer it will cost at least USD100,000 per year, therefore, small asset managers may struggle with the fees. "You will see that some of them have been trying to find other products, probably in order to avoid the cost of clearing swaps," added Carruzzo.
Paul Willis, global compliance officer at ABN AMRO Clearing in London, added that end-users will suffer if institutions decide they no longer want to participate in certain sectors due to regulatory requirements. "People are going to carve their business up, so the U.S. facing are not U.S. facing. Rather than being able to go to 10 brokers to get a quote, you might only be able to go to three, and what's that going to do to the pricing?"
Willis also noted that there are external costs for the end-user which firms have no control over. "We still have to charge them the margin that the law dictates and that will lead to an increase in costs."
