Isda reports increase in OTC derivatives automation; use of FpML on the rise

Isda reports increase in OTC derivatives automation; use of FpML on the rise

The latest research from the International Swaps and Derivatives Association (Isda) shows an increase in automation of over-the-counter derivatives, particularly credit derivatives, and growing use of the Financial products Markup Language (FpML) standard.

Isda's Operations Benchmarking Survey was conducted among 67 institutions and shows rising levels of automation despite a doubling in the average number of credit derivatives trades handled by each dealer in 2004, compared with 2003.

Isda says 40% of all credit derivatives trades confirmed using electronic systems in 2004, up from 24% a year earlier. The backlog of credit derivatives confirmations reduced from an average of 17.8 business days reported in the 2004 survey to 11.6 in the 2005 survey.

Furthermore, Isda says 68% of respondents that have not yet automated credit derivatives confirmation generation plan to do so in the next year.

Robert Pickel, CEO and executive director, Isda, says: "The industry has made a significant commitment to tightening up its post-trade processing performance and is reaping the benefits of these efforts most notably in credit derivatives."

Generation of automated interest rate swaps confirmations also rose to 62% versus 58% the previous year, while for vanilla equity derivatives this figure increased to 41% from just 14% previously.

A separate Isda survey shows that use of the Financial products Markup Language (FpML) has increased substantially, - especially among large firms - but is held back by uncertainty regarding the technology and competencies needed to implement the standard.

The results show that just under half of the 37 responding financial institutions currently use FpML in OTC derivatives processing, particularly the larger firms, of which 75% currently use the standard.

Of large firms using FpML, an average 57% of trades and 66% of interest rate swaps are in FpML format. Plans to adopt the standard are highest for interest rate and credit derivatives and FX spot, forwards and swaps trade data.

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