A UK startup designed for the off-exchange derivatives trading market has been unexpectedly wound up after it fell foul of strict new rules on the trading of swaps, reports the Financial Times.
NetOTC was founded in 2011 with the aim of exploiting changes to the $170tn over-the-counter swaps market that required traders to post greater margin for their trades.
The startup claimed it would bring clearing house style risk management to the swaps market and reduce margin costs for particpants by creating a centralised venue for banks to net their margin payments.
The London-based venture, founded by two ex-Barclays Capital legal directors, recruited a number of high profile employees including Roger Liddell, the former chief executive of LCH.Clearnet and Bob Wigley, the former head of Merrill Lynch in London, alngside 42 other employees.
NetOTC had also recently publicised its sponsorship of a major derivatives conference just the day before it announced that the company would be placed on hold indefintely.
According to Liddel, the company's chief executive, NetOTC was a victim of regulation, more specifically the new rules on the use of collateral from global regulators like the Basel Committee and the International Organisation of Securities Commissions which, he said “do not currently allow for a more efficient use of collateral and do not envisage a predetermined orderly default management process. Both would have contributed substantially to regulators’ stated objective of sound, stable, resilient, transparent and orderly markets".
The company has not ruled out a relaunch should the regulatory environment become more favourable.