Spending on electronic credit derivative trading systems in the US is set to increase by 45% this year, according to a recent report by Aite, the US research consultancy group. The spending rise, expected to reach $500 million, is due to a desire by many banks to cut the costs associated with credit default swaps transactions, turning the settlement process into an automated one.
The report estimates that the cost of a trade made electronically has now fallen to $420 per trade, compared with $570 two years ago, with further drops expected in the future. By switching to a fully automated system, many in the industry are also hoping that errors and operational risk will also be minimized, cutting further costs involved in rectifying them.
The Aite report says that the US in particular needs to catch up in the world of credit derivatives electronic trading. At present an estimated 90 per cent of trades are still paper-based, compared with Europe where the majority are now performed electronically.