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SimCorp Survey Reveals that Capital Markets are Unprepared for OTC Derivatives Central Clearing

Results show that 53% of capital markets respondents are not ready to centrally clear interest rate and credit default swaps

SimCorp, a leading provider of investment management solutions and services for the global financial services industry, today released the findings of a poll conducted in March. Respondents included nearly 60 executives from 34 capital market firms from around the world.

With regulations like Dodd-Frank and EMIR aiming to increase transparency and market efficiency in over-the-counter (OTC) derivatives trading, the poll asked respondents whether or not their firms are ready to centrally clear interest rate swaps (IRS) and credit default swaps (CDS). While 41% answered yes, a 53% majority answered no.

According to Paul Rowady, Senior Analyst at TABB Group, “The fact that most investment management firms are not prepared for central clearing is not surprising. This is rooted in an overreliance on legacy and fragmented portfolio management systems which makes it difficult for firms to get the most basic information on the state of their business. Without the right technology in place, asset managers will continue to struggle, especially considering how OTC derivatives reform is only the first step in what will likely be a continuing overhaul of how firms address all securities and manage their exposures across an enterprise.”

When asked to share the largest challenges in processing derivatives, respondents cited cost, collateral management, intraday reporting, systems integration and regulatory compliance.

“Derivatives are complex instruments. Therefore, state-of-the art systems with accurate collateral forecasting, consolidated positioning-keeping to facilitate intraday reporting and automated workflows to support the entire trade lifecycle are absolutely essential for investment managers dealing with the tsunami of new regulations,” explains David Kubersky, Managing Director of SimCorp North America. “At SimCorp, our core focus is on improving the competitiveness of investment managers, so we annually invest more than 20% of our revenue in research and development in order to constantly improve our solution, leverage the latest technologies and help our clients earn an attractive rate of return on investment in a constantly evolving, extremely challenging marketplace.”