OTC Derivatives Operations: The Path to STP

by Mayiz Habbal, PhD, September 8, 2008

Abstract

New York, NY, USA September 8, 2008

While trade capture and confirmations/affirmations still constitute over 50% of OTC post-trade processing costs, the buy side desires technology which addresses the post-confirmation process in order to reach the next level of efficiency.

While trade capture and confirmations/affirmations still constitute over 50% of OTC post-trade processing costs, the buy side desires technology which addresses the post-confirmation process in order to reach the next level of efficiency.

The report’s findings conclude that while trade capture and confirmations/affirmations still constitute over 50% of OTC post-trade processing costs, the buy side desires technology which addresses the post-confirmation process (the other half) in order to reach the next level of efficiency. To accomplish this feat, a wave of new and improved technology solutions must provide the appropriate architecture and components for a true path to STP.

"Beyond the boundaries of the enterprise, the buy side is in favor of centralization and user communities for STP," says David Easthope, senior analyst with Celent's Capital Markets group and co-author of the report. "Within the boundaries of the enterprise, the buy side is focused on flexible systems which can accommodate or plug in with existing systems and offer workflow and trade lifecycle monitoring. While some market participants may wish for an end-to-end solution, the immediate need is for point solutions which can fit the existing architecture of the enterprise and expand or adapt over time," he adds.

Celent identifies the fundamental building blocks of an STP solution for OTC derivatives as the following combined components: Dynamic Trade Modeling, Reference Data, Confirmation/Affirmations, Pricing and Valuation, Reconciliation Engines and Utilities, and Collateral Management

"We believe the role of event-driven architecture is what will bring all of these components together into a single framework," says Mayiz Habbal, head of Celent's Capital Markets group and co-author of the report.

This 51-page report contains 11 figures and three tables. A table of contents is available online. For more information from SmartStream please click here. 

Members of Celent's Capital Markets  research service can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.  

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

New York, NY, USA September 8, 2008

OTC Derivatives Operations The Path to STP

Executive Summary 3
Research Process 6
Introduction 7
Finding a Path to STP 11
Framework for STP 19
Dynamic Trade Modeling 23
  Background 23
  Challenges and Pain Points 23
  Buy Side Wish List 24
  Application of Technology 24
Reference Data 27
  Background 27
  Challenges and Pain Points 27
  Buy Side Wish List 29
  Application of Technology 31
Confirmation/Affirmation Process 33
  Background 33
  Challenges and Pain Points 33
  Buy Side Wish List 34
  Application of Technology 35
Pricing and Valuation 36
  Background 36
  Challenges and Pain Points 36
  Buy Side Wish List 37
  Application of Technology 38
Reconciliation Engines and Utilities 39
  Background 39
  Challenges and Pain Points 40
  Buy Side Wish List 41
  Application of Technology 41
Collateral Management 43
  Background 43
  Challenges and Pain Points 44
  Buy Side Wish List 46
  Application of Technology 46
Conclusions and Takeaways 47

 

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