Goldman Joins ETF Plumbing Union

It's hard to overstate the complexity of new regulations that are transforming the financial industry.

Some of the biggest changes are taking place in the derivatives market, where new rules are requiring firms for the first time to post hundreds of billions of dollars in collateral to protect against systemic shocks. This collateral typically takes the form of cash or securities that can be liquidated quickly, such as government bonds.

The goal is laudable: to cushion against losses and firm failures when leveraged wagers go belly up. The result is a bit messy. Firms now have to become cash managers in a way some of them never have before, and they have to meet increasingly high hurdles when it comes to back-office compliance.

Let's consider what counts as collateral: Cash or cash-like securities, including short-term Treasuries. Here's the problem: U.S. government bonds are quite different from cash when you look under the hood, at least when it comes to the back-office operations involved with trading them. They're often not traded electronically. Some are centrally cleared, some aren't. They have different maturities that all need to be accounted for. At times, it can be hard to find a willing seller.