Capital markets unprepared for OTC derivatives central clearing, says SimCorp survey
Fifty three per cent of capital markets respondents are not ready to centrally clear interest rate and credit default swaps, according to a poll conducted by SimCorp.
The survey, conducted in March, surveyed the views of nearly 60 executives from 34 capital market firms from around the world.
With regulations like Dodd-Frank and EMIR aiming to increase transparency and market efficiency in over-the-counter (OTC) derivatives trading, the poll asked respondents whether or not their firms are ready to centrally clear interest rate swaps (IRS) and credit default swaps (CDS). While 41 per cent answered yes, a 53 per cent majority answered no.
Paul Rowady, senior analyst at TABB Group, says: “The fact that most investment management firms are not prepared for central clearing is not surprising. This is rooted in an overreliance on legacy and fragmented portfolio management systems which makes it difficult for firms to get the most basic information on the state of their business. Without the right technology in place, asset managers will continue to struggle, especially considering how OTC derivatives reform is only the first step in what will likely be a continuing overhaul of how firms address all securities and manage their exposures across an enterprise.”
When asked to share the largest challenges in processing derivatives, respondents cited cost, collateral management, intraday reporting, systems integration and regulatory compliance.
“Derivatives are complex instruments. Therefore, state-of-the art systems with accurate collateral forecasting, consolidated positioning-keeping to facilitate intraday reporting and automated workflows to support the entire trade lifecycle are absolutely essential for investment managers dealing with the tsunami of new regulations,” says David Kubersky, managing director of SimCorp North America. “At SimCorp, our core focus is on improving the competitiveness of investment managers, so we annually invest more than 20 per cent of our revenue in research and development in order to constantly improve our solution, leverage the latest technologies and help our clients earn an attractive rate of return on investment in a constantly evolving, extremely challenging marketplace.”
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