- Calypso Risk survey highlights need for improved credit derivatives technical infrastructure in financial institutions
San Francisco, 10 November 2004 - Calypso Technology, a leading provider of cross-asset front to back trading solutions for the capital markets industry, today announced the results of a survey of the global credit derivatives markets. According to the survey, most leading organisations believe their current technical infrastructure will not support the growth in their credit derivatives business over the next five years.
The study, which canvassed over 100 risk managers, traders, operations and IT staff at financial institutions globally, discovered widespread anxiety over the scalability of current systems. Respondents defined improved product coverage and risk reporting as key areas in the need for improving credit derivatives infrastructure.
Some of the key findings are as follows:
· Many firms are preparing for business growth: 58% said their organisation was in the process of upgrading their infrastructure with a further 13.5% planning to upgrade in the next one or two years. Only 10.8% had no definite plans to upgrade their technology.
· Key drivers cited for investment in credit derivatives technical infrastructure were making improvements to product coverage, risk management and upgrading technology.
· When questioned about the capability of their current infrastructure to handle the necessary innovation in credit derivatives trading, only 20% were satisfied with how quickly new structures could be added, while 46% were dissatisfied with the ability for integrated cross-product trading.
· 90% of respondents placed importance on real-time risk analysis in a credit derivatives infrastructure. Hedge recommendations and direct links to reference entity data were also considered to be very important in a credit derivatives infrastructure, while matching between sales and traders also featured high on the list.
· In response to questions about credit events, only 21.9% of respondents' organisations were able to track all trades either on demand or immediately. Using several disparate systems to track credit exposure was considered by 88% to impact on their firm's ability to effectively process a credit event, with 65% of respondents considering this impact to be either medium or high.
"This survey highlights the importance of a holistic approach to credit derivatives systems. For any significant player in the market, the requirements of the technical infrastructure across all dimensions are considerable. These range from performance and scalability, to product coverage across a dynamic and structurally innovative landscape, standards compliance, post-trade processing and automation, and credit event management," comments Mas Nakachi, Senior Analyst at Calypso Technology. "The challenge of managing all of these dimensions in an integrated fashion has created a need for the next-generation of credit derivatives systems."
The credit derivatives business is expected to enjoy continued growth over the next year. As expected, the largest growth in volumes looks likely to occur in single name CDS with 82% of respondents predicting an increase. Over half of the participants also predicted growth in more complex credit derivatives structures, including synthetic CDOs.
The survey was conducted in conjunction with Risk magazine.