Last year the Federal Reserve Bank of New York called a meeting with 14 banks to discuss concerns about risk management practices in the credit derivaitves markets. In particular regulators are concerned by the high level of unsigned confirmations outstanding between counterparties with, in some cases, transactions remaining unconfirmed for months. In October the banks pledged to cut the number of confirmations outstanding more than 30 days by 30% by January.

The Markit survey of 23 leading participants in the credit derivative market found that dealers increased the average headcount in credit operations by almost 25% while investments in technology rose by over a third as banks moved to upgrade and replace trading systems in orrder to improve operational efficiency.

Jonathan Davies, a partner at Reoch Consulting, told reporters that technology spending rose to an average $32.7m among leading banks in 2005, up from $24.6m in 2004, with 90% of the budget earmarked for electronic trading platforms.

But as the credit derivatives market continued to soar during the year - with credit default swap trades executed per month increasing by 89% over the last year - banks struggled to cope with confirmation backlogs which continued to increased depite efforts to fix the problem.

Davies told reporters that the absolute number of backlogs continued to rise, but as a percentage of the total they fell.

But according to the study banks have made significant improvements in operational infrastructure. About 80% of market participants - including all the top tier firms, now use use the Depository Trust & Clearing Corporation for trade matching, up from 60% in 2004.

In September the International Swaps and Derivatives Association (ISDA) said all 14 banks had signed up to its new Novation electronic messaging protocol, which allows the transfer of existing trades to third parties via the exchange of electronic assignment messages in place of written consent.