Bank of America Merrill Lynch today announced that it’s getting into the business of clearing derivatives, which it expects will be quite lucrative. The new business segment will be called Global Futures and Derivatives Clearing Services (GFDCS), which will be part of the Global Markets Financing and Futures platform (GMF&F).
The company said it will conduct “agent-clearing services for rates, currencies, credit, equities and commodities derivatives.”
But why derivatives, why now? Let’s see what Tom Montag, president of Global Banking and Markets, has to say in a statement: “Establishing an industry-leading derivatives clearing service is a top priority for our Global Markets business. Every client we serve will be impacted by the financial reforms transforming the OTC derivatives market.”
Aha! Dodd-Frank financial reform. Transparency in the often opaque over-the-counter derivatives market has been a goal of that legislation. The ultimate goal is for derivative contracts to emerge from their current status as bilateral agreements into a central clearinghouse.
TheStreet.com reports that other banks like Citigroup, Deutsche Bank and JP Morgan Chase have all entered the derivatives clearing business, although they haven’t formally announced such activity. Goldman Sachs said it was entering the derivatives clearing market in July. The banks aren’t expected to serve as clearing-houses, but rather to get clients’ derivatives agreements cleared through existing companies.
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