The research highlights how the ongoing growth in derivatives transactions is adversely impacting the operations of buy-side firms. Based on in-depth interviews with executives, the Celent research reveals that affirmation/confirmation accounts for half of OTC post-trade processing costs.
To deliver greater operational efficiency the report argues that new and improved technology solutions are needed to deliver the appropriate architecture and components, and provide a path to STP. Celent identifies the fundamental building blocks of an STP solution for OTC derivatives to be: Dynamic trade modelling, reference data, affirmation/confirmation, pricing and valuation, reconciliation engines and utilities, and collateral management.
David Easthope, senior analyst with Celent's Capital Markets group and co-author of the report, commented: âBeyond the boundaries of the enterprise, the buy side is in favour of centralisation and user communities for STP. Within the boundaries of the enterprise, the buy side is focused on flexible systems which can accommodate or plug in with existing systems and offer workflow and trade lifecycle monitoring. While some market participants may wish for an end-to-end solution, the immediate need is for point solutions which can fit the existing architecture of the enterprise and expand or adapt over time.â
Steve Miller, Senior Product Manager at SmartStream said: âThe inherent problems in the post-trade processing of OTC derivatives have been well-known for some time. The use of manual processes and bespoke applications designed around a single instrument type makes creating an integrated architecture, or at least one that can understand the whole suite of products, a challenge. That is what we are tackling with TLM Trade Process Management and the advancements to that solution that will be announced at Sibos. With TLM we can introduce automation from the point of execution through to settlement confirmation, delivering visibility and control to derivatives processing throughout their lifecycle, including post-confirmation.â