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Dodd-Frank 30 Day Countdown: Day 2

Insight Robin Powers Robin Powers · July 14, 2011

Swaps Experts Say Market Will Grow; Others Differ in Opinion

As the swaps market braces for Dodd-Frank impact, firms and investors differ on the anticipated changes in the newly regulated market.

Citigroup, Inc. recently released a white paper predicting that interest rate and credit default swaps will grow more than 10% by 2013 as trading risk will decrease and price transparency will increase under Dodd-Frank. Citigroup also stated that Clearinghouse increased requirements for margin will likely cause market participants to avoid marginally profitable investments. They estimate that 60% of OTC derivatives market by volume will soon be centrally cleared.

While Citigroup speaks of a burgeoning new market, many on the hedge fund side are preparing for some not so welcome changes. Many funds are scaling back on hiring, faced with the anticipated increased cost of complying with Dodd-Frank and investor wariness. Further, some managers fear that with short interest rates nearing zero and an ever flattening yield curve on top of market uncertainty, the returns experienced over the last quarters will no longer be attainable. This pessimistic view of the markets, on top of increased infrastructure costs, paints a dim picture for some funds. 

http://www.hedgetracker.com/article/The-Cooling-Market-for-Hedge-Fund-Traders

http://www.bloomberg.com/news/2011-07-13/derivatives-rules-to-help-swaps-market-grow-40-7-trillion-citigroup-says.html

-Stephanie Kane co-authored this post