Sell-side progress on derivatives clearing capacity and give-ups
14 July 2022 UK
Image: Mykola Mazuryk/adobe.stock.com
The post-trade systems of derivatives clearing banks performed significantly better during the volatility of the first quarter in 2022 compared to during the beginning of the COVID-19 pandemic, despite being tested with higher volumes.
This is according to Acuiti’s quarterly Clearing Management Insight Report, produced in partnership with Smartstream, surveying senior sell-side executives in the global clearing industry.
An Acuiti report in April 2020 found that more than 60 per cent of the sell-side experienced significant difficulty with back-office processing and reconciliations during February and March 2020 owing to volatility, with a strained give-up and allocations process.
The new report finds that 86 per cent of respondents believe the give-up process delivered better results now than in 2020, with 14 per cent indicating it performed significantly better.
74 per cent of respondents also say the allocation process is now performing better. For those surveyed that monitor global capital markets back-office systems, 78 per cent say they experienced fewer problems in Q1 2022 than in 2020.
Acuiti and Smartstream note that as well as higher volumes and give-ups compared to 2020, liquidity came under more pressure than at the outbreak of the pandemic.
Commenting on the findings of the report, Will Mitting, founder of Acuiti, says: “Significant investments have been made to address the issues that clearing members faced in the volatility of Q1 2020 and these investments are delivering greater internal operational efficiency for the sell-side.
“Attention for senior derivatives executives is now turning to addressing challenges that impact operational efficiency and resilience across the market, such as reference data, which we profile in this quarter’s report.”
Acuiti and Smartstream find that a massive 75 per cent of Tier-1 banks cite reference data errors as a regular cause of trade breaks. However, the report also notes that the point of weakness for reference data fragmentation is increasingly from outside sources rather than within an organisation, with only 20 per cent of respondents reporting moving data between internal systems as challenging.
Linda Coffman, executive vice president at SmartStream RDU, adds: “Reference data is still managed by many firms across multiple platforms and systems with corrections and exception management handled in silos. While significant progress has been made by many firms in the market, there is still a lack of transparency and recognition around the cost attributed to bad data.
“Derivatives is a complex asset class with unique reference data challenges. Therefore, it is even more critical that firms continually monitor exchange notifications to ensure that reference data is kept up to date.”
This is according to Acuiti’s quarterly Clearing Management Insight Report, produced in partnership with Smartstream, surveying senior sell-side executives in the global clearing industry.
An Acuiti report in April 2020 found that more than 60 per cent of the sell-side experienced significant difficulty with back-office processing and reconciliations during February and March 2020 owing to volatility, with a strained give-up and allocations process.
The new report finds that 86 per cent of respondents believe the give-up process delivered better results now than in 2020, with 14 per cent indicating it performed significantly better.
74 per cent of respondents also say the allocation process is now performing better. For those surveyed that monitor global capital markets back-office systems, 78 per cent say they experienced fewer problems in Q1 2022 than in 2020.
Acuiti and Smartstream note that as well as higher volumes and give-ups compared to 2020, liquidity came under more pressure than at the outbreak of the pandemic.
Commenting on the findings of the report, Will Mitting, founder of Acuiti, says: “Significant investments have been made to address the issues that clearing members faced in the volatility of Q1 2020 and these investments are delivering greater internal operational efficiency for the sell-side.
“Attention for senior derivatives executives is now turning to addressing challenges that impact operational efficiency and resilience across the market, such as reference data, which we profile in this quarter’s report.”
Acuiti and Smartstream find that a massive 75 per cent of Tier-1 banks cite reference data errors as a regular cause of trade breaks. However, the report also notes that the point of weakness for reference data fragmentation is increasingly from outside sources rather than within an organisation, with only 20 per cent of respondents reporting moving data between internal systems as challenging.
Linda Coffman, executive vice president at SmartStream RDU, adds: “Reference data is still managed by many firms across multiple platforms and systems with corrections and exception management handled in silos. While significant progress has been made by many firms in the market, there is still a lack of transparency and recognition around the cost attributed to bad data.
“Derivatives is a complex asset class with unique reference data challenges. Therefore, it is even more critical that firms continually monitor exchange notifications to ensure that reference data is kept up to date.”
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