Equity swaps clearing plans divide industry

Balance sheet constraints are forcing some delta one desks to confront the idea of clearing some of their equity swaps books. But faced with such a diverse universe of equity products and a market rigidly in favour of customisation, dealers and CCPs are facing a tall order

Eric Litvack, Societe Generale Corporate & Investment Banking

Dealers in the equity derivatives market are facing a huge problem. A host of balance sheet constraints on their equity finance desks – from bank levies in the UK and other European countries to the various iterations of the leverage ratio – are restricting their ability to offer instruments such as total return swaps (TRSs) to clients in the scale they previously enjoyed.

There is an obvious, though for some, unpalatable solution at hand to ease the crunch: push some of the more standardised