Meet Joe. Joe is a swaps trader within a small institution that has a straightforward hedging strategy at both the micro and macro levels. Being a price-taker, Joe has built and maintained broker relationships that enable him to easily get a swap priced at an acceptable level, provided counterparty limits allow. Joe’s back office is practicing weekly collateral exchange with various counterparties in cash. As such, Joe lives in a very comfortable world.
But Joe is in for a nasty surprise. The practice of looking for a good price from a trusted broker-dealer is about to be turned upside down. Regulations spanning from Basel III and CRD IV to Dodd-Frank and EMIR will make the decision of where to trade what and with whom a lot more complicated. The following simplified, non-exhaustive view shows how varied -- and not always correlated -- the influencing factors for deciding on a trade have become.