OTC Derivative dealers to invest millions in new technology, report reveals

15 November 2010

Almost $675 million is to be invested in financial technology by Over the Counter (OTC) Derivative dealers in preparation for new regulation via the Dodd-Frank act, a new report has claimed.

A study by the TABB Group estimated that the top 15 swap dealers will invest $385 million as part of a move towards a central clearing facility.

The top 15 banks will spend a further $290 million on technology to ensure more efficient workflow processes to replace existing systems, the report revealed.

These increases in investment will be coupled with a rise in the number of dealers handling swaps, which the group predicted would be up to 30 by 2011.

Kevin McPartland, a TABB senior analyst and author of the report, said: “The OTC derivatives market is in for revolutionary rather than evolutionary change.

“Phones won’t disappear, high-frequency swaps trading will not be born overnight, but the area in between will see these markets grow. While existing bulge-bracket dealers will not die, they’ll change as new dealers emerge with fresh approaches and innovative technology, grabbing a part of the market.”

The group stated that regulations concerning OTC Derivatives need to be drawn up by regulatory bodies and implemented by July 2011.

By Jim Ottewill

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