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OTC lifecycle control begins internally with operations

The internal operational challenge surrounding OTC derivatives remains an area that individual firms have to take responsibility for.

In early 2008 we were obsessed about volume, bottlenecks and efficiency, in 2009 we are facing a slightly different operational challenge; that of counterparty risk and exposure management and underlying principles of operational control.

As many buy-side firms have focussed on solving the initial issues of confirmation processing, whether automated or manually processed, only a few have gone beyond that to manage the life-cycle of the contract. 

In reality many operational areas are geared towards securities processing where the transaction can be captured, confirmed and settled same day or T+3. This does not translate easily into the world of OTC derivatives - systems need to adapt to support the extended operational governance beyond the initial contract.

Effective operational control requires post-trade event management that extends into contract maintenance activities of increases, amends, terminations and novations. Only by extending automation and removing the manual processing related to contract maintenance can an operation truly be controlled effectively.


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