For Immediate Release Wednesday, June 1, 2005
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Automation of
Credit Derivatives Processing Improves
Automated generation of credit derivatives confirmation has increased to an average of 40 percent from 24 percent last year, the Survey found, while the number of credit derivatives confirmation backlogs dropped significantly. Furthermore, 68 percent of respondents that have not yet automated credit derivatives confirmation generation plan to do so in the next year. The backlog of credit derivatives confirmations reduced from an average of 17.8 business days reported in the 2004 Survey to 11.6 in the 2005 Survey.
“Through ISDA, the industry has made a
significant commitment to tightening up its post-trade processing performance
and is reaping the benefits of these efforts most notably in credit
derivatives,” said Robert Pickel, Chief Executive Officer and Executive
Director, ISDA. “These results are particularly encouraging in light of the
increased volumes in credit derivatives trading. ISDA is mindful of the goals
set forth in its Strategic Plan for operations and the need to continue
improvements in processing of all privately negotiated derivative instruments.”
According to the Survey, the
average weekly number of credit derivatives trades rose from 283 last year to
644 and average monthly settlements more than doubled from 2,042 to 4,960.
Error rates in front-office processing of credit derivatives, whether as a
result of error or change in trade details, reduced from an average 18 percent
of transactions to 9 percent in the 2005 Survey. For trades that needed to be
rebooked, there was a reduction across all sizes of firms, the percentage for
large firms reducing from an average 26 percent to 15 percent.
Generation of automated interest rate swaps confirmations was reported at 62 percent versus 58 percent the previous year, while for vanilla equity derivatives this figure increased to 41 from 14 percent. The backlog of vanilla interest rate swaps confirmations rose slightly from 8.9 to 10.1 days across all sizes of firms, but decreased slightly in large firms from 10.8 to 10.6 days. For vanilla equity derivatives, a similar small increase was seen from 12.5 to 13.3 days.
For the first time these
results are complemented by a separate Survey on the use of FpML
in the automation of trade processing. Results show that just under half of
responding financial institutions currently use FpML in their OTC derivatives processing, particularly the
larger firms, of which 75 percent currently use the standard. Of large firms
using FpML, an average 57 percent of trades and 66
percent of interest rate swaps are in FpML format.
Plans to adopt FpML are highest for interest rate and
credit derivatives and FX spot, forwards and swaps
trade data.
ISDA
is the global trade association representing leading participants in the
privately negotiated derivatives industry. ISDA was chartered in 1985, and
today has more than 625 member institutions from 47 countries on six
continents. These members include most of the world's major institutions that
deal in privately negotiated derivatives, as well as many of the businesses,
governmental entities and other end users that rely on over-the-counter
derivatives to manage efficiently the financial market risks inherent in their
core economic activities. Information about ISDA and its activities is
available on the Association's web site: www.isda.org.
About FpML
FpML is the business information exchange standard for
electronic dealing and processing of financial derivatives instruments. It
establishes the industry protocol for sharing information on, and dealing in,
financial swaps, derivatives and structured products over the Internet. It is
based on XML (Extensible Markup Language), the standard meta-language for
describing data shared between applications. Information about the FpML standard, the specifications and the different working
groups can be found on the FpML web site: www.fpml.org.