Many of the industry's great and good have been meeting at the International Swaps and Derivatives Association's AGM this month in Boston. Reports are that the over-riding theme to emerge from the conference was of that of continuing focus on de-risking the operations side of derivative trading. Many of the world's regulators were in attendance, including respresentatives from the FSA, ECB and the US Federal Reserve and they called for:
- Greater transparency in credit pricing, coupled with more stress testing and tighter risk management
- Continued focus on automating the post trade flows and clearing the confirmation backlogs in (especially) equity, interest rate and commodity derivatives
- More "war-gaming" by participants i.e. more scenario testing (where historical market events such as the LTCM crisis or the market movements post 9/11 are mathematically modelled on current holdings to assess how positions should be valued and closed out)
- Focus on the use of collateral and collateral management procedures
To be fair - there is essentially nothing new here. The industry (and the central utilities and documentation specialists in particular) have made great strides in the past couple of years to sort out the backlogs and systemic risks in the back office, but focus has mainly been on credit derivatives. Focus now seems merely to be switching to other asset areas. DerivServ has the credit side tied up, and Swapswire the IRS, however (as the article below hints at) the next big area will be equity derivatives....
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Monday, April 30
Sunday, April 29
NYSE Euronext backing for LIFFE OTC plans
by
Sean Sprackling
on Sun 29 Apr 2007 10:16 BST
The management of the newly formed NYSE/Euronext group has given its backing to plans by the UK Futures exchange (LIFFE) to expand its clearing operation for OTC derivatives. Known as "Bclear", the service is an "on-exchange" clearing utility that allows users to register over-the-counter equity derivative transactions as on-exchange contracts and use LIFFE's clearing services (via LCH.Clearnet). I think that this is a clear signal from the group that they intend to move away from their reliance on equities and will be focusing on the derivative markets in the future. LIFFE has long lead the way in futures and options in the UK and is quickly becoming a force in (the clearing of) OTC transactions as well. Indeed last year, the most profitable part of Euronext.LIFFE (as it was then) was Bclear. This, coupled with their "Afirm" OTC matching service, therefore now puts them firmly in competition with the DTCC (whose DerivServ service provides confirmation matching and clearing - mainly for credit derivatives) and Swapswire (who provide the same services for swaps). Both these two services have been trying to break into the equity derivatives market but it certainly looks as though NYSE/Euronext have stolen a march on them. Whether this is good news for buy-side investment managers however is moot, having therefore to sign-up for not one but three post-trade processing utilities depending on the type of contracts traded....
Saturday, April 28
Trading Confirmation technology
by
Sean Sprackling
on Sat 28 Apr 2007 11:11 BST
Misys has entered the increasingly crowded technology space for the matching and confirmation of OTC derivatives with the announcement of a new Unstructured Trade Confirmation module for its treasury system Treasury Plus. The module is designed to match OTC derivatives transactions by utilising a two-part system to match basic transaction stubs and
affirm attached supporting documents. Misys say that this UTC solution can
accommodate transactions such as FX exotic options and metals trades.
Users will also be able to see additional new features including a report scheduler, a failed SWIFT messages screen, and enhancements to the action list and additional reports - which all serve to increase transaction processing and improve efficiencies across treasury operations. Friday, April 27
Understanding the Derivative Challenge
by
Sean Sprackling
on Fri 27 Apr 2007 17:04 BST
As a consultant to the Investment Management community, the one thing that all my clients, without fail, ask me about is how to navigate their way through setting up their operations to deal with derivative transactions. The attached article explores some of the issues they face in a little more detail...
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