Derivatives surge sees two thirds of firms increasing tech investments

Firms look to increase tech investment in 2017 amid surge in derivatives activity.

By Hayley McDowell

Over two thirds of financial institutions will increase investments in technology in 2017 to keep up with the surge in derivatives activity, according to a recent survey by FINCAD. 

A poll of 230 global buy- and sell-side firms found 92% will either increase or continue with the same level of derivatives activity in 2017. 

Legacy systems, however, are holding institutions back from implementing more complex strategies in swaps, options and futures.

Of those considering increasing investment in technology to deal with this, 57% of firms were either unsure or certain their existing systems could not handle changes in derivatives trading. 

In the report, FINCAD said many institutions will need to invest heavily to overhaul or replace their valuation and risk systems.

Capital markets strategist at FINCAD, Matt Streeter, explained the current reality is that “small-scale tools are too basic, and in-house developed legacy systems are too rigid to support the complexity, nuances and demands of derivatives trading today.”

The Bank of International Settlements’ (BIS) latest quarterly review conducted a survey in April this year and polled 1,300 financial institutions in 52 countries.

It found the daily average turnover of foreign exchange and interest rate derivatives traded worldwide – on exchanges and OTC – surged from $10.5 trillion in April 2013 to $11.3 trillion in April 2016.