Blog

We all know the business drivers for re-engineering OTC derivatives operations, from the new extensive requirements for central counterparty clearing (CCP) connectivity to the changes in regulated fund mandates such as UCITS III. This exercise doesn’t have to be just a cost centre, driven by requirements to comply with regulatory demand. Why not take this opportunity to boost efficiencies in OTC and broader derivatives operations, reduce admin and reporting burden and free up more time to generate alpha? It’s time for fund managers to rethink their operational and technology landscapes.
 
Swaps are becoming increasingly popular as an investment strategy and need to be considered in future operations requirements. It is an opportune time whilst implementing CCP workflows and other OTC market reform changes to improve the entire process – after all, derivatives operations are only as good as the weakest link in the system. By proactively responding to the new business environment and effectively structuring OTC derivatives business, institutions can take advantage of opportunities, protect franchise value and avoid the potential downside of these changes.
 
A well thought-out operational strategy mitigates risks including requirements to interact with new market infrastructure and internal fragmented processing between front, middle and back-office. Firms can optimise derivatives operations by improving capabilities for growing volume, removing operational bottlenecks and reducing risk with scalable, audited processing and reconciliations. Real-time status management is an important provision as is building capabilities to enable and support new investment strategies. Operational capacity and efficiency can be increased through process consistency and automation.
 
OTC regulatory compliance is not a box-checking exercise. It requires a change in operational workflows and systems integration. Firms must break down operational silos and all data requirements, both new and old, must be captured at each transaction stage and stored intelligently for future uses such as counterparty risk management and dispute resolution.
 
Regulatory changes will continue to make ever increasing demands on financial services institutions. Whilst evaluating the regulatory response it makes sense to consider the operating landscape. There is an opportunity to use the need for regulatory compliance to improve current operating procedures and realise real business value.