to meet new requirements for transparency and central clearing.
Wayne, PA (Vocus) April 14, 2010
John Avery (http://twitter.com/john_avery), partner at SunGard Consulting Services, said, “The global OTC derivatives market is in a critical state of transition, largely because of pending regulations. Every participant in the listed and OTC market will have a different roadmap in response to anticipated regulatory changes. The focus on transparency, efficiency and market structure changes have highlighted numerous operational challenges that exist in processing OTC derivatives. Firms need to identify which improvements in applications and architecture will help them create new efficiencies in OTC derivatives processing, and improve their "regulatory IQ" to meet new requirements for transparency and central clearing.”
Findings of a global study on the OTC derivatives industry, sponsored by SunGard and completed by leading industry research and advisory firm TowerGroup, identify three areas in which technology can help improve transparency and efficiency in OTC derivatives: risk management, counterparty exposure and compliance. Immediate areas of focus are on valuations, collateral management and clearing. The study, "Addressing the End-to-End Risks and Inefficiencies in OTC Derivatives," is based on a recent survey of more than 60 risk officers at leading OTC derivatives firms, including buy-side, sell-side and asset servicers.
According to TowerGroup, both technology and operations must play a role in achieving transparency around trading, position reporting and counterparty exposure to valuations, as well as improving risk management. Operational risk is an acute problem for OTC derivatives firms because of the manual nature of trading and post-trade processing. In addition, the post-trade lifecycle will require significant technology alterations and operational changes to accommodate the central counterparty clearing model.
Among the findings and conclusions of TowerGroup’s study are:
- Eighty percent of respondents cite greater transparency in risk management as a top driver compelling their organizations to improve OTC derivatives processing.
- More than 60% of respondents indicate counterparty exposure as a key driver for operational improvement. Central clearing will help market participants address the demands for transparency from regulators and institutions.
- More than 45% of respondents cite regulatory compliance as the third most important driver, requiring considerable work on both technology and operations.
- Vital post-trade functions of valuations and collateral management will receive the most immediate attention, as they are fraught with operational and technological weaknesses.
- Despite the regulatory push and high impact of clearing, more than 60% of firms have not determined, started, or even planned for a solution to accommodate central clearing.
Stephen Bruel, (http://twitter.com/StephenB_TG ) research director, Securities & Investments, at TowerGroup, said, “Regulators and market participants alike are clearly stepping up their efforts to instill greater transparency and control of products, activities, participants, and the infrastructure as a whole that supports the OTC derivatives business. TowerGroup believes as a result that three drivers will spur improvement initiatives: risk management, counterparty exposure, and regulatory compliance.”
SunGard solutions for OTC and listed derivatives support the entire trade lifecycle, from execution to settlement and including exchange gateways, settlement interfaces, risk and collateral management.
SunGard Consulting Services also offers a tailored impact assessment of regulatory mandates and industry initiatives, as well as detailed roadmap planning for tactical and strategic business process changes and projects in support of derivatives trading.
- Video - TowerGroup’s Stephen Bruel discusses the major issues facing the derivatives market: http://www.youtube.com/watch?v=Rg1lI7xAZ6g
- Video - SunGard City Days Chicago, Panel Discussion: Dealing with the Aftermath of the Financial Crisis http://www.esg.us/CityDays_Video/Versions/PanelDiscussion_V4/Panel_Discussion_v4-1.html
- What’s Your Position? Blog:
- Whitepaper: Implications of Financial Regulatory Reform on Buy-side OTC Derivatives Market
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