Derivatives Market Opening Up, Executive Says

Marti Tirinnanzi, senior vice president with TeraExchange, joined REIT.com for a video interview at NAREIT’s 2013 Law, Accounting and Finance Conference in La Quinta, Calif.

Tirinnanzi described the overall health of the derivatives market following the enactment of the Dodd-Frank financial reform legislation in response to the global economic crisis.

“The market is improving, but it’s in transition right now,” she said. “It’s going from an opaque market that was once controlled by a few large banks to one that’s more of an open marketplace that offers price transparency and also offers the benefit of mitigating, counterparty and systemic risks. It’s a market that all market participants can have confidence in, which is a really good thing.”

Tirinnanzi also defined the differences between the over-the-counter bilateral swaps and the Chicago Mercantile Exchange’s centrally cleared swaps.

“Bilateral is where you are actually executing a trade with a bank counterparty,” she said. “It’s going to be risky in the post-Dodd-Frank world, and it’s going to be expensive. With centrally cleared (swaps), there are two things you need to know: It’s safer and it costs a lot less.

Tirinnanzi elaborated on the benefits and costs of both approaches.

“The greatest benefit is that it’s a true market where REITs get to see the bid and ask on prices. It’s also effective risk mitigation,” she said. “The biggest cost, and a great concern for a number of companies, is the posting of margin. It’s a cost to protect the company from risk, and I think that’s something we should keep in mind.”

Tirinnanzi shared her thoughts on the future of the derivatives market.

“Remember the time when you used to call your stockbroker and buy stocks? You don’t do that anymore. We go online and buy our stocks online,” she said. “This is where I see the derivatives market going. That level of efficiency is coming to bear in this market, and I think it’s going to happen within the next 12 to 24 months.”