ISDA survey shows rise in FpML; on target for confirmations processing

Figures from the International Swaps and Derivatives Association (ISDA) annual survey show that automation - including use of the FpML standard - continued to increase steadily over 2003 and that the industry is meeting targets on confirmation processing.

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ISDA survey shows rise in FpML; on target for confirmations processing

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ISDA's Operations Benchmarking Survey was conducted among 64 institutions and identifies operations processing trends in the privately negotiated derivatives industry.

This year's survey shows that most large firms increased their use of FpML during 2002. ISDA says about 33% of medium-sized firms plan to increase use of the standard this year.

FRAs and currency options had the highest overall degree of automation last year, with 22% of respondents auto-matching at least half of their confirmations.

During the year, participating firms met objectives of producing confirmations by five days after trade date (T+5) for forward rate agreements (FRAs), vanilla swaps and commodity derivatives.

Confirmation dispatch times for less standardised products, such as credit and equity derivatives, also improved. Responses show that 83% of credit derivative and 84% of equity derivative confirmations are sent out in the T+5 target time.

Future plans to improve automation of plain vanilla swaps will focus on the transfer of trade data from the operations system to the general ledger, sending of confirmations and matching of confirmation details.

Responses to the survey also indicated a decrease in outstanding confirmations across product areas. The most significant decrease was in outstanding equity derivative confirmations, among all sizes of responding firms. Also, 90% of large firms report that they have a formal escalation procedure in place to deal with outstanding confirmations, while 55% of all firms saying such procedures apply risk weighting to prioritise these.

Results show that firms are prioritising automation of credit derivative processes in the year ahead, with 47% of respondents planning to increase automation of credit derivative matching capabilities.

Pickel, ISDA's executive director and chief executive officer, says: "The derivatives industry continues to improve its operational processing performance and to set and meet more stringent goals."

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