Digital Assets Report


Like this article?

Sign up to our free newsletter

MFA supports efforts to improve market efficiency in equity derivatives

Related Topics

The US-based Managed Funds Association (MFA) has supported the 15 May letter sent by 18 major derivatives dealers (the major dealers) to the Federal Reserve Bank of New York and other rele

The US-based Managed Funds Association (MFA) has supported the 15 May letter sent by 18 major derivatives dealers (the major dealers) to the Federal Reserve Bank of New York and other relevant regulators outlining goals and strategies for improving operational efficiency in the equity derivatives markets. 

MFA stated it ‘strongly supports the increased use of electronic platforms to reduce backlogs of trade confirmations in equity derivatives. In contrast to the credit derivatives markets, where trading volumes consist largely of interdealer transactions, a majority of trades in the equity derivatives markets are between dealers and buyside counterparties, such as hedge funds.’ As a result, MFA maintains that the goals outlined in the letter present challenges that may be met only by the engagement of the Major Dealers and their principal client constituencies together in the process of devising workable strategies to achieve those goals.

‘MFA fully endorses efforts to improve market discipline and efficiency as set forth by the President’s Working Group on Financial Markets (PWG) Agreement issued in February of this year,’ said John G. Gaine, MFA’s president.  ‘Our ongoing work with the Major Dealers demonstrates MFA’s commitment to collaborating with counterparties to address the issues presented by the growth of certain over-the-counter derivative markets and to strengthen transaction processing and settlement arrangements.’

MFA began working with the dealer community in early 2005 to develop ways to improve processing practices for new trades and novations in the credit derivatives market.  Collaborative efforts with the Major Dealers, the International Swaps and Derivatives Association, Inc. (ISDA) and its member firms, and the Asset Managers Group of the Securities Industry and Financial Markets Association (SIFMA) led to initiatives that resulted in less than one year in substantial reductions in backlogs of trade confirmations for credit derivatives.

More recently, MFA’s work with the Major Dealers has focused on practices in the equity derivatives market, where MFA’s members are substantial and active participants.  In an effort to strengthen operational efficiency in these markets, MFA has worked diligently with ISDA and the dealer community to craft standardized documentation for major equity derivatives products so that they may be processed electronically.  MFA will continue to work toward improving market practices by collaborating with the Major Dealers to prioritize future standardization efforts and to develop a strategy for prompt on-boarding of clients to electronic processing platforms.

‘It is essential that the Major Dealers seek input from important market participants such as hedge funds to ensure that the implementation of new processes and strategies will work,’ said Gaine.  ‘MFA’s continuing collaboration with the dealer community on major issues facing the derivatives markets demonstrates our industry’s dedication to improving market soundness, and we pledge to continue working toward solutions that will achieve increased operational efficiencies in these vital marketplaces.’

MFA is the voice of the global alternative investment industry, representing professionals who specialize in hedge funds, funds of funds and managed futures funds. MFA’s over 1,300 members include representatives affiliated with the majority of the 100 largest hedge funds. Since inception in 1991, MFA has provided industry leadership in government relations, media relations, communications and education to MFA members and investors.  MFA is headquartered in Washington, DC, with an office in New York.

Like this article? Sign up to our free newsletter

Most Popular

Further Reading