(Pictured: Marianne Brown)
Trading in OTC derivatives in the US has become as close to real time as is technologically possible, thanks largely to regulation from the Federal Trade Commission. According to Omgeo, there will be a domino effect in other markets and instruments.
Omgeo’s president and CEO, Marianne Brown, was in Australia last week as part of a regular trip throughout the Asia Pacific region. But it was her first trip under the new ownership structure, which was announced by Omgeo early this month. And that was a focus in discussions.
She was joined by Tony Freeman, London-based executive director of industry relations, and Sydney-based Matthew Chan, the strategy and industry relations director for APAC.
Omgeo was launched in 2001 as a joint venture between the data and media company Thomson Reuters and DTCC. Now, DTCC has exercised a preferential option to buy out its partner.
DTCC operates as a type-of co-operative. It is owned by its principal users on a cost-plus basis, distributing surpluses back to members. It was formed in 1999 but its genesis dates back to Wall Street’s “Paper Crisis” of the late 1960s and early 1970s.
The buoyant stock market of the day had led to a crisis in settlements, which required messengers to deliver paper scrip and cheques covering more than 10 million shares a day. It became so severe that the NYSE had to close each Wednesday to deal with the backlog and settlement requirements were moved out from T+4 to T+5.
So, with approval from Congress and the SEC, the industry formed two organisations – a depository called DTC and clearing house, NSCC – which came up with the concept of netting all broker contracts in individual stocks. The two organisations merged in 1999 to form DTCC.
DTCC subsequently expanded and had several subsidiaries and one joint venture – Omgeo, with Thomson Reuters.
Marianne Brown points out that as far as JVs go, Omgeo must rate as one of the most successful ever. “It’s the subject of MBA case studies,” she says. “How many can you think of that lasted that long?”
And the parting of ways has not been complete. The two companies have entered into a series of service agreements post sale, covering things such as shared office space and technology. There are also has some new initiatives between the two parties planned.
“It’s been a brilliant partnership,” she says. “We’ve grown to have more than 6,500 customers and 14 offices around the world.”
As a privately held firm, which may or may not become more transparent under single ownership, Omgeo is careful about the financials it reveals. The importance of the Asia Pacific region, for instance, is not quantified publicly.
Brown is helpful, though. She says that to estimate the regional revenue shares around the world, you should look at fund flows. Clearly North America and Europe have not been strong compared with this region in recent years. She added that Japan had grown by 29 per cent (year-on-year) and the APAC region by 10 per cent.
“We’ve extended our range of solutions and that’s driven significant growth,” she says. “We’ve also seen growth in non-traditional Asian markets such as Malaysia and Thailand. There’s no question Asia is an outlier of growth for us.”
Matthew Chan adds: “This growth reflects on-boarding of new clients in that market, including clients using us to process their domestic trades, as well as the generally more buoyant market conditions there since the end of last year. Japan remains a key market for us.”
From an industry-wide perspective, the regulations which have followed the financial crisis are going to have lasting effects. For instance, for Omgeo, when President Obama was re-elected and people realized the Dodd Frank legislation was not going to be repealed, as it may have had been under a Republican presidency, there’s been an increase in take-up of the automated post-trade services.
Tony Freeman says that there is a global trend emerging in derivatives. This is where the regulators first focused their attention during the crisis.
“The trend is to do everything more quickly. My expectation is that the regulators will have learned from what happened with OTC derivatives… The US is now the gold standard, being as close to real time as technologically possible because of the FTC regulation… It’s a slow revolution but it shows that markets can change when you have a mandate for it.”