OTC reform requires financial technology investment, say swap dealers

12 December 2011

Financial technology investment is critical if swap dealers are to build out their businesses amid a climate of regulatory uncertainty, a new study has revealed.

According to the European Credit & Rates Dealers 2011: Capital, Clearing and Central Limit Order Books paper by the TABB Group, 90 per cent of swap dealers believe technology is “mission-critical” - and top-tier financial institutions are expecting to spend a minimum of $100 million per year in ensuring their technology is up-to-speed.

Will Rhode, TABB senior research analyst and author of the research, said: “Whether it be trading connectivity, reinventing prime broker systems for client clearing, implementing straight-through processing (STP) software or revamping single-dealer platforms (SDPs), these dealers are dedicating valuable resources to new technology roll-outs, despite such capital constrained times.”

However, the research also found that 70 per cent of swap dealers are lobbying against the new regulation to delay their implementation while continuing to develop technology updates.

The survey claimed that while the top-tier is doing its best to prepare for the changes, many mid-tier dealers are “balking” at the costs surrounding the changes.

Many dealers believe that the scope of the European reform aimed is too wide and that Basel III could prevent growth within the markets.

24 European swaps dealers were questioned as part of the research.

By Jim Ottewill

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