Most commentary following the credit crisis has focused on the mitigation of systemic risk. I however, believe that current market conditions are bringing operational risk to the fore. Operational risk is the exposure created by the inability to process trades in an accurate and timely manner. Periods of high price volatility and volume fluctuation such as those that we are currently experiencing can exponentially magnify the exposure.Recent examples involve stocks such as Volkswagen and RBS the latter has had single-day price movement in excess of 60%. An error made in the booking or confirmation of a trade can therefore result in significant losses. Moreover, recent events amongst other things, have proved that widespread operational risk can spiral and develop into systemic risk.The spiraling effect can be prevented by the automation and standardisation of the trade verification process to achieve Same Day Affirmation (the completion of the trade confirm process on the execution date of the trade) to mitigate operational risk.
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