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Derivatives reform opportunity

Sovereign wealth funds can benefit from derivatives reform, says white paper from BNY Mellon and MFin students at Cambridge Judge Business School.

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Sovereign wealth funds are well positioned to benefit from regulatory changes in the over-the-counter derivatives markets, according to a white paper from BNY Mellon and Cambridge Judge Business School.

Three students on the Master of Finance (MFin) programme at Cambridge Judge – Shirley Wu, Zijing Jiang and Hirokazu Kutsukake – worked with BNY Mellon on the paper as part of their MFin Group Consulting Project. The academic supervisor was Dr David Chambers, Reader in Finance and Academic Director of the Newton Centre for Endowment Asset Management at Cambridge Judge.

“The project was a great experience that allowed me to gain many new perspectives from my teammates, the advisers, and all the readings we went through,” says Shirley Wu. “It was a challenging task to form a concrete direction for the paper and then organise all the research results in a logical and easy-to-follow manner for the audience.”

The paper – entitled “OTC derivatives reform: putting asset owners and sovereign wealth funds in the driver’s seat” – cites recent regulatory changes such as Basel III that have placed increasing restrictions on financial institutions. This has resulted in potential opportunities for sovereign wealth funds, which are exempt from many of these new restrictions.

Although the report focuses on sovereign wealth funds, it says that the findings are also relevant to other large asset owners with regard to their capacity to adjust to the challenges and opportunities presented by post-crisis reforms such as those to the OTC derivatives markets.