THE FUTURE OF POST-TRADE DERIVATIVES PROCESSING

In the derivatives industry, significant, year-over-year transaction volume growth has become the norm. With high-frequency trading driving up the volumes of trades to hundreds of thousands or even millions per day, derivatives market participants must be able to manage these higher volumes. Moreover, due to market volatility, the peaks in volume must be managed within shorter time intervals, and this is driving the need for scalability.

A key factor to meeting the challenge is the ability to reduce the length of end-of-day processing and complete tasks more quickly. However, increased volumes can present difficulties for the monolithic back-office systems that firms have invested in and tailored to their business over many years. These systems must be enhanced to scale and perform optimally in an unpredictable and high volume trading environment. But enhancing the scalability of an entire back-office system in order to manage one specific task ramps up the cost of hardware, software and staffing.

So what is the recommended approach?

Component-based processing can help to address these challenges by focusing on improving scalability only for targeted functions or specific tasks. This technology approach means that firms are enabled to manage high volumes while continuing to leverage their current back-office systems without increasing their total cost of ownership (TCO).

This approach helps to increase flexibility by extracting system functionalities to optimize back-office processes. It also helps firms to improve the scheduling of these tasks. This is especially useful for time zone processing and scaling to new business requirements.

For example, let’s imagine that a large global clearing firm wants to ensure its processing in Asia, Europe and the U.S. is successful according to the requirements of each regional timeframe. A component-based approach gives the firm the ability to launch global end-of-day processing that covers all regions with the flexibility to run each one individually according to time zone.

Components also help to increase scalability while controlling TCO. Based on a firm’s specific requirements, they can make technology choices regarding which processes to externalize to improve processing. This eliminates the cost and pain of a switch-over to new platforms or the need for additional hardware.

With the right system strategies, the back office can provide better returns in the long run, especially given the explosion of information and trade volumes. Firms must take steps to strategically leverage technology to be more agile and efficient while still properly managing operational risk. The future of post-trade derivatives processing is here.