01 December 2015

OTC clearing rules to spur big tech spending - Tabb

29 September 2011  |  7675 views  |  0 Circuit board

The global regulatory push to centrally clear over-the-counter derivatives has started a "technological revolution" that provides a big opportunity for vendors, according to a report from Tabb Group.

Following the global financial crisis, there has been a determination on both sides of the Atlantic - through Dodd-Frank and Emir - to introduce more central clearing for OTC derivatives as a way of increasing transparency and reducing risks.

Tabb estimates that as new trading and clearing mandates are implemented, transaction volumes could increase twentyfold with market data volumes rising three to four times above current levels.

To help deal with the consequences of these new rules, OTC derivatives market participants will spend $3.4 billion this year on clearing and back-office technology alone, says the report, which draws on interviews with industry players.

Despite the fully staffed IT teams and eight-figure budgets at big global dealers and some clearing houses, building this infrastructure will be difficult without third-party assistance, says report author Kevin McPartland.

"Technology providers have already stepped in to revamp legacy systems and build new technology that solves many of the issues born from expected regulations. The biggest market participants will take a best-of-breed approach, utilising the best off-the-shelf products they can buy and tightly integrating them with systems that are built by in-house staff," he says.

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