Last week’s letter from the Operations Management Group to Timothy Geithner, President of the Federal Reserve Bank of New York, was both thought provoking and inspiring – so how did it manage to slip under the radar of almost all of the mainstream financial
Not only was it pleasing to see that the resounding goal of the Group was to create a derivatives market that matches its trades on trade date but also the ambitious nature with which they propose to tackle the issue – by July of this year, for electronically
eligible confirmable trade events, 90% of the major dealers and buy-side institutions in the Operations Management Group will have T+1 submission and 90% will be submitted accurately and matched without amendment.
The confirmation and affirmation of trades on the day a trade has taken place, irrespective of what asset class is being examined, is a massively important issue for the financial industry to address and something that I would wholeheartedly support.
While derivatives are seen as a higher risk for confirmations and the OTC space lacks requirements around the full value at risk proposition, the SocGen debacle has highlighted that risk management controls and the effectiveness of risk management initiatives
across all areas of the trading cycle need to be addressed. If same day affirmation is on the radar of the major brokers and buy-side players for the OTC space why is this not true of other areas?
The OTC and equities markets are two sides of the same coin so it doesn’t make sense to apply principles to one side and not to the other – surely there needs to be a similar shake-up in the equities markets around same day affirmation. It may be the case
that confirmation and affirmation rates are higher in the equity markets but there is still a long way to go, and while the derivative markets do seem to be flavour of the month there is still a lot of work to be done in the traditional asset classes.