Next Focus for Derivatives Automation: Equities
With the over-the-counter derivatives community making significant progress to improve operating efficiency for credit derivatives, market observers anticipate equity derivatives, another rapidly growing instrument, to be next on the automation agenda.
DTCC introduced equity derivatives to the Deriv/SERV platform in December 2004, following the successful launch of its automated matching and confirmation service for credit default swaps (CDS) the previous year.
"We are continuously enhancing the service to provide equity derivatives dealers and buy-side firms with a complete, robust platform that will enable them to increase automated processing of their transaction data," said Janet Wynn, DTCC general manager, DTCC Deriv/SERV.
Heightened focus on equities
To manage the expansion of Deriv/SERV's equity derivatives capability, DTCC has formed a dedicated team that will focus on meeting the market's expanding and evolving needs. Headed by Gina Ghent, DTCC vice president, Business Development, this team will include technology professionals, along with expanded relationship management, customer service and operational support.
"The equity derivative market is facing challenges similar to those faced by credit derivatives a few years ago, but equities have their own distinct challenges due to the number of dynamic products and the geographic uniqueness related to the market," said Ghent. "The industry is now working with DTCC to automate equity derivatives to reduce unconfirmed trade backlogs and mitigate operational risk."
Wynn added, "We are following many of the same steps we took in building the CDS platform, but at a level much further up the learning curve."
Partnering with the industry
Overview of Equity Derivatives
Growth in equity derivatives, such as options, swaps and variance swaps, has been strong, with the total notional value outstanding for equity derivatives more than doubling to $5.5 trillion at the end of 2005 from $2.4 trillion three years earlier, according to the International Swaps and Derivatives Association (ISDA®).*
Wynn attributes DTCC's close collaboration with major dealers and buy-side firms in developing Deriv/SERV's capabilities for credit default swaps as an important element in the industry's rapid adoption of this service.
Now, to help guide the development of Deriv/SERV's equity service, DTCC has formed a working group that includes a number of dealer and buy-side firms. The group currently meets weekly to discuss industry needs, issues and action items related to fostering rapid adoption of electronic processing solutions.
Also planned is the creation of an Equity Derivatives Steering Committee, consisting of senior-level sell- and buy-side representatives, with a mandate to help guide the overall priorities and initiatives of the working group, and to provide input on implementation plans for the service.
Equities capabilities
When DTCC first introduced equities to the Deriv/SERV platform in 2004, it supported equity index and share options. Since then, the service has been extended to include swaps and variance swaps. It also accommodates relevant lifecycle events including new trades, full and partial terminations, increases, amendments and exits.
Going forward, DTCC plans to continue adding new equities products to the platform on a regular quarterly basis, starting with Asia Ex-Japan share and index options, scheduled for release by yearend. @
[For information on Deriv/SERV matching and confirmation for equity derivatives, contact Gina Ghent, DTCC vice president, Business Development at 212.855.5624 or gghent@dtcc.com.]