The International Swaps and Derivatives Association (Isda) is reporting an upsurge in the automation of trade confirmations for over-the-counter derivatives, with credit derivatives leading the way.
Isda estimates that on average 20% of plain vanilla swaps, and one-third of credit derivatives, are now being confirmed on an automated basis. This represents substantial growth in confirmation automation over the past year, says Isda, when only 13% of vanilla swaps and 6 percent of credit derivatives were confirmed electronically.
The Financial Services Authority recently wanred of the risks to firms operating in the fast-growing credit derivatives makret from the lack of automation in back office processing of confirmations.
According to figures from Isda, the notional amount for credit derivatives grew by almost 55% in the last six months of the year to $8.42 trillion from $5.44 trillion. This represents an annual growth rate of 123%.
The trade group says the trend toward automation is a response to continuing growth in the market and the need for firms to achieve higher levels of operational efficiency in handling both derivatives confirmations and cash processes.
Bob Pickel, Isda executive director and chief executive officer, says: "Our findings indicate that the industry in general and many firms in particular recognize the opportunity that automated solutions offer in decreasing operational risk and improving operational efficiency."