Nomura Abandons Swaps Clearing for US and European Clients

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.

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.

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 Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term-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 Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term clearers.