Soaring volume in credit derivatives is slowing their processing, tempting increased government regulation, warns Jos Stoop, general manager of financial services solutions at Interwoven.
“Against this backdrop, it is unsurprising that industry figures and supervisors are intervening,” Stoop said in a statement. “The Fed has set ambitious targets for processing derivatives trades and there needs to be significant investment in technology across the industry to meet these targets, improve their operations and reduce exposure to risk. In particular, tier two banks and the buyside will need to improve the way they automate the processing of CDS and equity derivatives. Failure to invest will risk them becoming an increasingly large drag on the efficient operation of the dealers’ processing, which will undoubtedly lead to even greater regulatory pressure.”
The remarks come in the wake of remarks that Fed Chairman Ben Bernanke made during a speech earlier in the week. “The New York Fed and other supervisors are working with market participants to fundamentally change how CDS and other OTC derivatives are processed by applying increasingly stringent targets and performance standards,” Bernanke says.