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SimCorp poll reveals continued failures in buy-side derivatives processing

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A concerning number of buy-side firms still rely on legacy systems even as they seek to generate alpha through alternative investment strategies, according to research carried out by SimCorp.

When asked if their firms need to create workarounds to support derivatives in current middle- and back-office operations, 82 per cent of respondents said yes. Additionally, over one-third of respondents admitted that the accuracy of client reports is compromised due to the need for extensive workarounds.
Buy-side respondents admitted that legacy systems hamper new product time-to-market, compromising competitive advantage. Fifty-three per cent revealed that their systems require at least two months to model and launch new derivatives products and sometimes significantly more. For 22 per cent of firms, this takes a minimum of four months. Only 24 per cent can roll out a new offering within one month while four per cent are entirely unable to launch new products using their current systems.
“The risks associated with legacy technology platforms are real,” says Paul Migliore, chief executive of Citisoft. “Traditional, long-only investment platforms were designed to support a specific sets of functions such as order management or accounting. The demand for alternative assets and innovative products has outpaced the technology platforms that are currently utilized in most investment management firms. Buy-side firms must transition from legacy platforms to state-of-the-art systems that broaden their asset coverage capabilities, especially in derivatives, and enable user control for queries, data access and reporting.”
David Kubersky, managing director of SimCorp North America, says: “The number of buy-side firms still attempting to process derivatives on disparate legacy systems is troubling given the system deficiencies that were exposed during the financial crisis. Manual processing and costly errors hinder vital business growth. Processing derivatives on state-of-the-art technology systems enables asset managers to boost return rates and deliver the transparency and accuracy that investors demand.  A state-of-the-art system should include an investment book of record (IBOR) that serves as a single source of truth from front- to back-office. Additionally, this system should offer integrated workflows in managing cash, margins, deliverables and collateral, accurate reporting and the ability to quickly introduce new products to market.”

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