What’s in a name? Regulatory vocabulary matters

Contributor: Peter Banham

Earlier this month, I attended SunGard’s London City Day, and the event’s many interesting conversations really got me thinking. The event’s sessions covered topics from OTC clearing to CVA, securities finance to collateral management, but all with an underline on regulation and what this will mean for firms everywhere.

One thing in particular that struck me is our regulatory vocabulary. If you stop and think about it, it is remarkable how powerful words actually are. The words we use to define and think about these complex issues can not only help us make sense of the regulatory changes but also complicate or confuse.

For example, at London City Day, people were beginning to understand that the idea of OTC instruments going “on exchange” and “exchange trading” simply means that the trading of these instruments is becoming “electronic.” Could a more familiar term make the changes seem less daunting?

But the event was more than a vocabulary lesson. Jim O’Neill and Sir Howard Davies led the day’s discussions with expositions on the regulations and macro-economic factors shaping the future of the world economy. This was then broken down into more detail in presentations and panel discussions by a host of leading industry names. From the sessions, a few key statements and ideas stood out to me:

• The global regulatory environment for derivatives remains very complex and increasingly costly to comply, both financially and politically. The three biggest challenges for regulation are:

1. Extraterritoriality from the U.S.
2. Concerns over protectionism from Europe and the U.S.
3. The completely disparate regulatory structures across all of Asia.

• There was a universal agreement that regulators need to “get it right, not get it done fast.” Most members of the OTC clearing panel felt that the earliest OTC-cleared would start is Q3 or Q4 of 2012.
• In the session OTC Clearing: Looking into the Crystal Ball, during a very interactive session, the danger of a price war using margin requirements between different clearing houses was raised, a panelist brought up the question of “too big to fail” with regard to the clearinghouses. He asked, “Why is it that only banks will require ‘living wills?’ Why not the clearinghouses? Surely some should also be classified SIFIs, (Structurally Important Financial Institutions), that we can’t let fail.”

Overall, the presenters and panelists added brilliant insights and brought up provocative questions at the event. I believe as we host more and more City Days, the conversations become more and more sophisticated about the many changes occurring in the financial industry today. Are you one of the more than 700 people who attended this year’s London City Day? What struck you at the event? What is your take on our “regulatory vocabulary?”

While you’re here…

• Register for an upcoming SunGard City Day, in Seoul, Zurich, Mumbai, Johannesburg, Dubai or São Paulo
• Download London City Day presentations to learn more

SHARE