Financial Firms ‘Face Increased Challenge in OTC Derivatives Processing’

Regulatory change and new market practices has caused fragmentation of over-the-counter (OTC) derivatives processing and data inconsistency, resulting in operational inefficiencies, increased risk and spiralling costs for the industry, claims Message Automation.

The software provider reports that feedback from buy and sell side firms across Europe, Asia and North America indicates the increased complexity, including fragmentation of the processes together with stringent regulatory imperatives, is forcing many firms to rethink their operational strategies for OTC derivatives.

Instead of harmonisation and risk reduction, the involvement of a growing number of new third parties including clearing houses, execution platforms and trade reporting repositories has actually made the processing and management of OTC derivatives even more difficult.

“Many of the firms we speak to agree that this vast array of complexity is driving up internal costs and more importantly increasing operational risk,” said Hugh Daly, chief executive officer (CEO), Message Automation.

“Because the market and regulatory changes are not delivering much needed harmonisation and clarity, we strongly believe that the firms involved need to take control themselves by using a single cross-asset platform that creates transparency across their entire OTC derivatives processing environment.”

Message Automation adds that the findings tally with benchmark survey statistics released in advance of the Clearing and Settlement World 2014 conference, taking place on 27-28 November. The report highlights that 81% of respondents see managing data quality as their biggest challenge, while only 23% believe that regulatory changes will reduce risk.


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