OTC Regulations on Clearing Have Started ‘Technology Revolution’, Says Tabb

Global regulators focusing on the clearing of over-the-counter (OTC) derivatives have started a technology revolution, according to research by Tabb Group. The study entitled ‘OTC Derivatives Clearing Technology: Bringing the Back Office to the Forefront’ said that a new wave of technological evolution has been instigated by regulators in the financial services industry.

The report examines: the impact new OTC derivative regulations will have on clearing technology for both sell side firms and clearinghouses; the cost of implementing the technology needed to handle real-time clearing and intra-day margin calls; and a view of the new clearing workflow. The findings of the report where based on conversations with clearinghouses, swap dealers, technology providers and buy-side clearing specialists

“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,” said Kevin McPartland, director of fixed income research, Tabb Group.

Tabb estimates that as new trading and clearing mandates are implemented, transaction volumes could increase twentyfold with market data volumes rising three to four times above current levels.

“Technology providers have already stepped in to revamp legacy systems and build new technology that solves many of the issues born from expected regulations. The biggest market participants will take a best-of-breed approach, using the best off-the-shelf products they can buy and tightly integrating them with systems that are built by in-house staff,” McPartland added.


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