IBM study slams derivatives clearing, prime brokerage systems

The study explained outdated systems used by clearing banks and prime brokers are not fit for purpose for today’s current regulatory environment.

By Joe Parsons

A new white paper from IBM has criticised current IT systems at major prime brokers and derivatives clearing firms, claiming they are restricting cost savings.

The paper, published with Cinnober’s subsidiary Minium, highlighted that outdated systems used by banks are not fit for purpose for today’s current regulatory environment.

“Firms simply will not be able to deliver the right level of return on equity for their clearing and prime brokerage businesses without a radical reassessment of their technology stack,” the paper said.

It also explained how current legacy technologies have held back banks’ abilities to achieve cost savings and efficiencies in derivatives clearing, prompting many to withdraw from the market.

It explained that many prime brokers and clearing banks are missing systems that can establish a “single source of truth”, that provide up-to-date trade information that can be accessed by different functions to ensure alignment of risk, controls, and financial processes.

The study also suggested “if that system could also produce a current view of collateral positions, including what has been pledged or recalled, control would be enhanced throughout the business.

“With such a system, firms could begin to access newer technologies, such as augmented intelligence, that will enable dynamic recognition of issues and enhance the capabilities of operations teams.”

Last year, IBM partnered with Northern Trust to deliver a blockchain platform for private equity administration, which would provide real-time information and enhanced security of private equity assets 

The study calls on prime brokers and clearing firms to embrace these technological changes, such as blockchain and API, which can ensure a “single source of truth”.

“There is an opportunity for firms that provide clearing and prime services to take a quantum leap forward by investing in new technologies that are tailored for modern businesses and aligned with the current regulatory environment,” the study added.

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