Goldman Sachs Group Tuesday entered the derivatives clearing business.
The investment and trading services firm, known more for its marketing of derivative securities such as collateralized debt obligations, said it launched Derivatives Clearing Services, to provide worldwide clearing of over-the-counter trades of interest-rate, credit, foreign exchange, equity and commodity derivatives.
Goldman’s clearing service will be an agency business designed to streamline the client derivatives clearing experience across products, asset classes and regions, the company said. The service will use existing prime brokerage and futures clearing platforms that Goldman operates to maximize efficiency.
“In partnership with our clients, regulators and multiple clearing venues, we are committed to improving market structure for derivatives,” said Michael Dawley, managing director and co-head of Futures and DCS, Goldman Sachs.
The move comes after President Obama signed into law the Dodd-Frank bill for Wall Street reform that will create exchanges and swap clearing facilities for credit derivatives that can be standardized. Separately, Goldman two weeks ago agreed to pay a $550 million in a settlement with the Securities and Exchange Commission over how it marketed a CDO known as Abacus 2007-AC1.
“The move to central clearing for OTC derivatives is a significant turning point in the marketplace," said Jack McCabe, also a managing director and co-head of Futures and DCS at Goldman Sachs. “Our strong trading franchise, coupled with our market leading futures and prime brokerage services, enables us to provide our clients with the foundation they need to adapt to these important industry developments."
The Goldman Sachs provides a wide range of financial services to corporations, financial institutions, governments and high-net-worth individuals. But it will hardly be alone in clearing derivatives.
On July 8, Bank of New York Mellon said it will help clear interest-rate derivatives for the International Derivatives Clearing Group. an independently-operated, majority-owned subsidiary of the Nasdaq OMX Group.
In March, IDCG itself said it would move into clearing interest-rate swaps, in conjunction with MarkitServ, an electronic processing house for over-the-counter derivatives.
The announcement followed the disclosure by LCH.Clearnet SA of Paris that it had successfully cleared its first credit default swap index contracts. And, in the same week, CME Group of Chicago said it was preparing to start clearing interest-rate swaps.
"Allowing market participants to deliver trades to our clearinghouse through their existing infrastructure is a major step forward for IDCG and the interest rate derivative market." said Garry O'Connor, chief executive officer of IDCG. "Allowing market participants to deliver trades to our clearinghouse through their existing infrastructure is a major step forward for IDCG and the interest rate derivative market."
MarkitServ is an electronic platform for processing transactions in over-the-counter credit, interest rate, equity and commodity derivatives.
CME Group said it is consulting the two main U.S. mortgage lending entities, Fannie Mae and Freddie Mac, as it moves to set up a clearing house for interest-rate swaps.
IntercontinentalExchange, which operates futures exchanges, began clearing swaps through an operating unit called ICE Trust, in March 2009.
Since then, the firm also launched ICE Clear Europe and the two houses have cleared $6.3 trillion in in gross value on more than 100,000 transactions.
Also Tuesday, the Financial Crisis Inquiry Commission in the United Kingdom is considering sending in outside accountants to audit Goldman's systems for collecting information on its derivatives business, the Financial Times reported.
The information the FCIC is seeking relates to Goldman's derivatives trading revenue, but Goldman executives claim such data would be meaningless because it would only show one side of the trade and ignore the other: