Nomura Holdings Inc. will no longer act as a middleman to allow clients to guarantee their swap trades with a clearinghouse, the latest bank to exit the business as new rules increase risks and costs in the $630 trillion market.
“Due to the evolving and uncertain regulatory and market environment,” Nomura will no longer offer its clients the option of clearing swap trades in the U.S. and Europe, Rob Davies, a spokesman for the Tokyo-based firm, said in an e-mailed statement Tuesday. “Our focus is to continue growing our execution business” in both private swaps and listed derivatives around the world, he said.
Nomura follows State Street Corp., Royal Bank of Scotland Plc and Bank of New York Mellon Corp. in dropping the business. Capital rules under the Basel Committee on Banking Supervision have made it more expensive for the world’s largest banks to act as clearing brokers. New rules in the U.S. and Europe also added costs to the market, which was unregulated from its inception in the early 1980s to the credit crisis of 2008.
Banks serve as the financial backbone for derivatives clearinghouses. They act as gatekeepers to the client business they bring to the service, ensure margins are paid and contribute their own funds to a reserve that’s used in case of a large default. Fewer banks acting as clearing members means the remaining firms face a more concentrated risk for the trades they bring to clearinghouses, which are owned by CME Group Inc., Intercontinental Exchange Inc. and others.
Nomura didn’t have a large business in swaps clearing. As of April 30, it held $28.6 million in client collateral, according to financial records maintained by the National Futures Association. JPMorgan Chase & Co., one of the largest swap dealers, had $6.4 billion in customer collateral at the end of last month.