OTC Firms Concerned With Operational Efficiency, Risk Management and Automation

Operational efficiency is the top concern for firms involved in OTC derivatives trading, followed by risk management and counterparty risk, according to a survey carried out by OpenLink Financial, a provider of cross-asset trading, risk management and operations processing software.

The survey of 100 firms, which was carried out during a webinar on April 28, looked at the relative importance of risk management concerns faced by senior operations professionals in the growing electronic environment.

It revealed that 81% wanted to find out more about operational efficiency, 21% want to improve their risk management practices and 17% are interested in focusing more on counterparty risk management.

Participants were asked to rank the level of counterparty review across asset classes achieved by their organizations as "High", "Medium" or "Low". While a little more than half selected the level at their firm's as "Medium," a little over a third noted that they have observed a high level of review. Only 11% stated that the level of review was" Low". The survey also found that 70% of firms plan to automate their OTC post-trade processes in 2010, including affirmation, confirmation and collateral management.

"The need for transparency underlies all of these statistics," Fritz McCormick, senior analyst at Aite Group, said in a release. "Gaps remain in affirmation/confirmation processes and counterparty review. Automating these areas, among others, will boost transparency, crucial for risk management, regulatory mandates and operational efficiency."

While the OTC derivatives markets are growing rapidly, organizations are at different states in the transformation of their settlement operations through automation, Ken Knowles, EVP, financial and risk solutions, OpenLink, said in a release.

“These initiatives become change management exercises via solutions which ultimately lead to better workflow efficiencies and controls. We conducted this survey in part to better understand how to translate the market's challenges into solutions which enable them to innovate and succeed in this rapidly changing landscape," Knowles added.

The survey revealed that respondents varied widely in their utilization of electronic OTC affirm/confirm processing. Approximately one third (28%) stated that most (more than 75%) of their affirmation, confirmation or collateral management processing is conducted electronically. About one quarter stated that electronic processing comprised 50-75% of that activity, (23%) conducted these activities electronically 25-49% of the time with the remainder of respondents at under 25%.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio