Sell side progress on derivatives clearing capacity and give-ups

The post-trade systems of derivatives clearing banks performed significantly better during the volatility of the first quarter in 2022 compared to the beginning of the pandemic, despite being tested with higher volumes, according to Acuiti’s quarterly Clearing Management Insight Report, produced in partnership with Smartstream. 

An Acuiti report in April 2020 found that more than 60% of the sell side experienced significant difficulty with back-office processing and reconciliations during February and March 2020 owing to volatility, with a strained give-up and allocations process.

The new report, which polled senior sell side executives in the global clearing industry, showed  that 86%   believe the give-up process delivered better results now than in 2020, with 14% indicating it performed significantly better.

It also showed that 74 % said the allocation process was better while 78% experienced fewer problems Q! 2022 than in 2020 in terms of  global capital markets back-office systems, 78 per cent say they experienced fewer problems in Q1 2022 than in 2020.

Acuiti and Smartstream note that as well as higher volumes and give-ups compared to 2020, liquidity came under more pressure than at the outbreak of the pandemic.

“Significant investments have been made to address the issues that clearing members faced in the volatility of Q1 2020 and these investments are delivering greater internal operational efficiency for the sell-side,” says Will Mitting, founder of Acuiti.

He adds, “Attention for senior derivatives executives is now turning to addressing challenges that impact operational efficiency and resilience across the market, such as reference data, which we profile in this quarter’s report.”

Acuiti and Smartstream also noted that a significant 75% of Tier-1 banks cited reference data errors as a regular cause of trade breaks.

However, the report also notes that the point of weakness for reference data fragmentation is increasingly from outside sources rather than within an organisation, with only 20% reporting moving data between internal systems as challenging.

Linda Coffman, executive vice president at SmartStream RDU.

Linda Coffman, executive vice president at SmartStream RDU, says,: “Reference data is still managed by many firms across multiple platforms and systems with corrections and exception management handled in silos. While significant progress has been made by many firms in the market, there is still a lack of transparency and recognition around the cost attributed to bad data.

She adds, “Derivatives is a complex asset class with unique reference data challenges. Therefore, it is even more critical that firms continually monitor exchange notifications to ensure that reference data is kept up to date.”

©Markets Media Europe 2022

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