Financial technology for OTC derivative clearings needs investment, says report

30 September 2011

Clearing houses and dealers need to increase their investment in technology used in the clearing of over-the-counter (OTC) derivatives, a new study has said.

The OTC Derivatives Clearing Technology: Bringing the Back Office to the Forefront study by the TABB Group said that a new wave of technological evolution has been instigated by regulators in the financial services industry.

According to the report, the implementation of new technologies is due to an anticipated rise in the amount of data produced surrounding trades.

Estimates suggest that transaction volumes could increase by twenty times while market data volumes could go up to as much as four times their current levels.

Kevin McPartland, a TABB principal, director of fixed income research and co-author with senior contributing analyst Finn Christensen, said: “OTC derivatives reforms are causing headaches all over Wall Street, the City and beyond.”

“Unfortunately, current clearing infrastructures are neither scalable nor flexible enough to handle the changes ahead, a fact driving a wholesale change from overnight (or longer) processing to near real-time clearing expected to occur during the next three to five years.”

The findings and content of the report were based on interviews with clearinghouses, swap dealers, technology providers and buy-side clearing specialists.

By Jim Ottewill

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