NetOTC Suspends Market Infrastructure Initiative, Citing Regulatory Challenges

NetOTC, a risk solutions firm, has pumped the brakes on its end-to-end market infrastructure initiative, following a number of barriers from new regulations that ultimately sapped the project of momentum, per a recent NetOTC development.

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UK-based NetOTC had been pioneering a fully integrated end-to-end market infrastructure for non-cleared over-the-counter (OTC) derivatives, working in conjunction with a plethora of regulatory and industry bodies, banks, and their respective clientele. However, the project ran into some early headwinds, which plagued the initiative, ultimately causing the group to put the entire process on hold.

Indeed, according to Roger Liddell, NetOTC’s Chief Executive Officer (CEO), in a recent statement on the initiative: "We developed the NetOTC pooled initial margin structure to make the use of collateral both more effective and more efficient. Core to our ambition was the objective to increase market safety and to protect against collateral exhaustion. To achieve this, we have worked with industry participants to create an end-to-end technology platform, a legal structure and a margin model, and we have been impressed by the appetite of the industry to engage and proud of the infrastructure model we have created.”

As a result, the project will be put on hold indefinitely, pending some regulatory breakthrough or shift in policy that has to date prevented the infrastructure from launching. Mr. Liddell left open the possibility that the project could be restarted, though there were presently no material plans to do so.

“The regulations do not currently allow for a more efficient use of collateral and do not envisage a pre-determined orderly default management process. Both would have contributed substantially to regulators’ stated objective of sound, stable, resilient, transparent and orderly markets. I look forward to a more favourable regulatory environment in the future that will see NetOTC's market infrastructure solution reinvigorated,” noted Mr. Liddell, who conceded the difficulties in a 2016 launch.