INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION
For Immediate Release Tuesday, July 9, 2002
For More Information, Please Contact:
Stacy Carey, ISDA New York, (212) 901-6011; Fax (212) 901-6001; email@example.com
ISDA 2002 Operations Benchmarking Survey
Automation Higher, Outstanding Confirmations Lower for Core Products
The 2002 Survey reports that automation has increased from last year, especially for forward rate agreements (FRA’s) and vanilla swaps. The average number of outstanding confirmations was lowest for FRAs and highest for credit derivatives. FRAs held at 7 days worth of trade volumes for 2001 and 2002. Outstanding confirmations for vanilla swaps decreased to 9 days in 2002 from 10 days in 2001. Non-vanilla swaps remained the same in 2001 and 2002 at 12 days, while outstanding confirmations were 14 days for equity derivatives and 21 days for credit derivatives.
“The derivatives industry endured a
difficult year, with some major firms operating from contingency sites
following the September 11 attacks,” said
ISDA’s annual Operations Benchmarking Survey, initiated in 2000, identifies and tracks trends in the industry. The results provide individual firms with a benchmark against which to measure the promptness and accuracy of their trade data capture, confirmation procedures, and settlement. As in past years, individual respondents receive a feedback report that compares their data with those of respondents of similar size and with those of the entire respondent population. The ability to compare this year’s results with those of the previous year helped ensure the integrity of the data by revealing unusual changes that might be the result of data errors. The entire survey can be accessed in the What’s New section on ISDA’s web site: www.isda.org. Highlights of the Survey follow this release.
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 575 member institutions from 46 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
ISDA 2002 Operations Benchmarking Survey
Volumes and Customers
· New OTC derivative trades increased to 803 per week from 689 per week in 2001, although volumes decreased at the largest firms surveyed. Most respondents expect volumes for most products to remain stable or increase by up to 25 percent in the next year except for credit derivatives, which firms expect to increase by more than 25 percent.
· Use of master agreements has increased since last survey. Respondents report that signed master agreements are in place with over 92 percent of their OTC derivatives counterparties an increase from 85 percent in 2001.
· Front office trade data are available for same day processing as follows: 100 percent for forward rate agreements; 98 percent for vanilla interest rate and currency swaps; 77 percent for credit derivatives and 83 percent for equity derivatives. A majority of trade details reach the back office by 5 p.m. on the trade date: 90 percent for FRA's; 86 percent for vanilla swaps; 70 percent for credit and equity derivatives.
· Errors in front office trade data, which most commonly occur in dates, are more common for credit derivatives (21 percent) than for FRA's (10 percent) and vanilla swaps (17 percent).
· Confirmation production has slowed marginally for FRAs (100% in 2001-98% in 2002) and vanilla swaps (95% in 2001-92% in 2002) and increased for non-vanilla swaps (73% in 2001-79% in 2002). As in 2001, the main reasons for delays are due to processing of new and non-standard products and awaiting approval from traders or marketers on documentation or approval from the legal and compliance area.
· Use of commercial auto-matching systems for FRAs increased to 38 percent of trades compared with 34 percent in 2001 and decreased for vanilla swaps to 4 percent in 2002 compared with 9 percent in 2001.
· Outstanding confirmations, expressed as days' worth of average confirmation volumes, increase with the sophistication of the product. The average number of outstanding confirmations was lowest for FRAs and highest for credit derivatives. FRAs held at 7 days worth of trade volumes for 2001 and 2002. Outstanding confirmations for vanilla swaps decreased to 9 days in 2002 from 10 days in 2001; non-vanilla swaps remained the same in 2001 and 2002 at 12 days. The newly added data on credit and equity derivatives debuted at 14 days for equity derivatives and 21 days for credit derivatives.
· FRA and vanilla swaps are more automated than credit and equity derivatives. The most common results are either no automation or substantial automation, suggesting an ‘all or nothing’ approach: that is, once a firm institutes some automation, it applies it widely. Functions with a high degree of automation include the transfer of data from the front office to the operations system; transfer of trade data from the operations system to the general ledger and addition of data to the front office trade record. The least automated functions are imaging of incoming confirmations, matching details of confirmations and receipt of incoming advices.
· Auto-matching capabilities increased for FRAs and vanilla swaps. Very few firms can auto-match non-vanilla swaps and none can auto-match credit or equity derivatives.
· Those respondents that reported no current automation indicated plans for future automation. For FRAs, 69 percent of respondents plan to automate confirmations sent; for vanilla swaps, 64 percent plan to automate outgoing notification of rate resets; for non-vanilla swaps, 75 percent plan to automate transfer of trade data from front office to operations; for credit derivatives, 80 percent plan to automate trade details; and for equity derivatives, 57 percent plan to automate outgoing notification of rate resets.
· FpML use is also expected to increase in the next 12 months. 76 percent of large firms, 6 percent of medium firms, and 20 percent of small firms are planning to increase their use of FpML over the next 12 months.