Rising trade volumes and the introduction of new technology have almost halved processing costs for credit and equity derivatives, according to research by City-based market intelligence firm Z/Yen.
Z/Yen says its survey of of 16 major banks showed huge volume growth in the OTC derivatives markets, with trade volumes for credit derivatives up 75%, while equity derivatives volumes grew 86%.
These volume increases together with new technology and the take up of cross-market industry utilities led to big reductions in the market average operations cost per trade for credit derivatives, which fell 42% from $401 to $233, and for equity derivatives which reduced 43% from $385 to $220.
But for interest rate derivatives, the trend was reversed with the cost per trade rising from $181 to $209.
Jeremy Smith, director of financial services, Z\Yen, says: "It is clear that the industry needs to look further at the automation of interest rate derivatives. Cancellation of major STP initiatives and the lukewarm take up of cross-market utilities has meant that processing costs are not significantly lower than 10 years ago."
At the same time, Z/Yen says demand for staff increased which has brought a significant rise in the cost per head. The average fully loaded operations cost per head has risen from $123,000 to $133,000 per annum and this is fairly consistent across all products, though there is a small premium for credit derivatives staff.
Within operations, Z/Yen says the confirmation process is still the highest area of cost, particularly for interest rate and credit derivatives, with several banks spending over $100 on each trade against an average of $40 to $60.