FINCAD: Derivatives boom leading to tech investment
03 October 2016 Vancouver
Image: Shutterstock
Financial institutions are increasing use of derivatives as an investment strategy and investing in technology in order to manage this change, according to a survey by FINCAD.
The survey found that, despite concerns around increased regulatory requirements, 87 percent of respondents are already using derivatives in their investment strategies, including futures, options, swaptions and hybrid or structured products.
However, 92 percent said they plan to either increase their derivatives usage, or keep it the same, in 2017.
According to FINCAD, the majority of firms are using complex derivatives strategies across multiple asset classes, and seeking out new currencies and investment types.
However, the survey report suggested that some firms are being held back by legacy systems, which could prevent them from implementing these strategies.
Of those considering more sophisticated strategies, 57 percent said they are either certain that their current systems would struggle with the changes, or unsure as to how they would cope. About two thirds, 67 percent, said they plan to increase investment in technology over the next year.
Matthew Streeter, capital markets strategist at FINCAD, said in a blog post on the survey: “The current reality is that small-scale tools are too basic, and in-house developed legacy systems are too rigid to support the complexity, nuances and demands of derivatives trading today.”
He went on: “What financial institutions need is a comprehensive valuation and risk solution that enables them to move quickly on market opportunities.”
“They also need an advanced modelling framework that affords utmost freedom and control for developing complex trading strategies that boost their return-generating potential. This is the only way firms can gain an edge in a fiercely competitive market.”
The survey included more than 230 institutions from both the buy and sell sides.
The survey found that, despite concerns around increased regulatory requirements, 87 percent of respondents are already using derivatives in their investment strategies, including futures, options, swaptions and hybrid or structured products.
However, 92 percent said they plan to either increase their derivatives usage, or keep it the same, in 2017.
According to FINCAD, the majority of firms are using complex derivatives strategies across multiple asset classes, and seeking out new currencies and investment types.
However, the survey report suggested that some firms are being held back by legacy systems, which could prevent them from implementing these strategies.
Of those considering more sophisticated strategies, 57 percent said they are either certain that their current systems would struggle with the changes, or unsure as to how they would cope. About two thirds, 67 percent, said they plan to increase investment in technology over the next year.
Matthew Streeter, capital markets strategist at FINCAD, said in a blog post on the survey: “The current reality is that small-scale tools are too basic, and in-house developed legacy systems are too rigid to support the complexity, nuances and demands of derivatives trading today.”
He went on: “What financial institutions need is a comprehensive valuation and risk solution that enables them to move quickly on market opportunities.”
“They also need an advanced modelling framework that affords utmost freedom and control for developing complex trading strategies that boost their return-generating potential. This is the only way firms can gain an edge in a fiercely competitive market.”
The survey included more than 230 institutions from both the buy and sell sides.
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