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Buy-Side Turning to Technology for OTC Derivatives Support

New regulations regarding the OTC derivatives market are prompting firms on the buy-side to increase their investment in technology. Systems need to enable firms to not only be compliant with t...

New regulations regarding the OTC derivatives market are prompting firms on the buy-side to increase their investment in technology. Systems need to enable firms to not only be compliant with the upcoming rules, but also to manage the inherent risks of the OTC derivatives market. The global economic crisis has placed counterparty, credit and systemic risk at the top of the agenda for many in the financial industry.

With the US leading the way, new rules are being designed to bring greater transparency and efficiency to the OTC derivatives industry, including requirements for trades to be executed via a swap execution facility (SEF) or an exchange, and cleared through a clearing house. This, along with the requirement that customized swaps be reported to central repositories, will bring OTC derivatives trades into the open, lowering risk and adding efficiency to the market.

The question remains whether these mandates alone will be enough for the buy-side to protect itself against portfolio risk exposure. Buy-side firms are reviewing their current systems to assess whether they can provide the necessary position keeping, connectivity and other risk-management tools they need to process OTC derivatives trades, as well as trades in other asset classes. Many traditional portfolio management and in-house systems were not built to cope with the complexities of today’s trading environment, causing firms to turn to a new generation of technology solutions that will help them be compliant with global regulations, while giving a holistic view of global risk exposure.

Having the right portfolio management system that effectively manages market and counterparty risks is no longer a nice-to-haveFree Articles, but a need-to-have for buy-side institutions.

Source: Free Articles from ArticlesFactory.com

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Sophis are a Portfolio and Risk Management company offering asset and risk management services



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