The International Swaps and Derivatives Association (Isda) says its latest industry survey shows significant improvements in post-trade processing of credit swaps, with the level of outstanding confirmations continuing to fall.
Earlier this week 14 of the world's largest credit derivatives dealers pledged to cut the backlog of unconfirmed trades clogging up back offices by 70% by the end of June. The new proposals were agreed after the dealers had met earlier targets to cut trade confirmation backlogs by 30%.
Isda says its latest survey of 62 dealers shows that while the number of credit swaps transacted by large firms more than doubled over the past year, post-trade processing has "significantly improved".
For larger firms - those which conduct 1500 or more swaps trades a week - the survey revealed that the level of outstanding credit default swap confirmations has decreased from 23.5 to 16.2 days worth of business.
For all respondents, the level of credit derivatives confirmations outstanding decreased from 13.2 to 12.6 days of business.
The research also indicates that all 62 firms continue to reduce the amount of time it takes to generate and send credit derivatives confirmations to counterparties. Over half - 53% - of respondents send out a confirmation by T+1, up from 33% a year ago. Over two-thirds (67%) send a confirmation by T+2, compared with 50% a year ago. Just nine per cent send confirmations by T+5.
Among the larger dealers, 50% send out confirmations by T+1 and 63% by T+2. All manage to send out confirmations by T+5.
Robert Pickel, Isda CEO and executive director, says the survey shows that derivatives industry participants have committed to improving their operational and back-office processes, even as volumes continue to increase.
Pickel says initiatives to generate further improvement - such as Isda's new electronic messaging protocol for the novation of trades - are gaining traction and will enable firms to reduce operational risks even further.
Isda said in November that 1500 firms had signed up to use its protocol, which is designed to streamline the transfer of existing trades to third parties via the exchange of electronic assignment messages rather than written consent.
In their most recent correspondence with the Federal Reserve, top CDS dealing houses noted that while the implementation of the novation protocol has greatly reduced the time to confirm novations, "the market now realises we need to work towards a straight through processing (STP)-like consent-to-novation process...which itself requires tools and processes on both the dealer and client sides".