Mostly… fixed income and cross product eTrading

August 22, 2007

Back Office Woes

Filed under: etrading, STP — holky @ 6:54 pm

Heavy trading volumes on Aug 10th particularly in credit derivatives and credit default swaps have exposed weaknesses in the systems used by some investment banks for clearing these complex products, leading to backlogs of trades awaiting confirmation, and many working the weekend to start clearing the backlog.

One provider of derivatives technology said “Electronic confirmation rates are higher than they used to be but what the banks aren’t saying is how much manual work goes on behind the scenes getting the trades ready for matching”, and also “Electronic confirmation rates may be 80% to 90% but how long after trade execution is that happening? If it’s a week or more, the risk is great, whether the trade is being confirmed electronically or otherwise.”

Most CDS trades are executed over the phone between dealers and their brokers, meaning trade data is manually keyed into bank’s internal systems, leading to errors, one banker estimating that 20% of electronic confirmations fail because the trade data has not been entered correctly – the problem being compounded by the dealing room culture which regards data entry and operational efficiency as a back-office problem.

So to add these ingredients to waratahs recent muse on whether ‘e’ cds was coming; shouldn’t the platforms with CDS ‘etrading’ offerings now be positioning this offering entirely as a workflow solution (a-la swapswire). So this isn’t that scary electronic trading with click and trade real time pricing and credit checking requirements, its just a route to enable your customers to negotiate then capture the terms of the trade, then communicate this via whatever api links and pipes to all parties who need to know thereafter. If the problem is again that the platforms aren’t flexible or generic enough to support all the products and variations required, why not just offer the transaction building blocks to allow dealers to arrange these as required to service their clients? Spend your development ££ on this rather than bells and whistles in the gui that nobody will ever see because they cant use the platform.



  1. “the problem being compounded by the dealing room culture which regards data entry and operational efficiency as a back-office problem.”

    Amen. The desk has an ‘eat what you kill’ philosophy. The back office position is if we didn’t gut, clean and cook what you killed, you’d be standing knee-deep in a field of rotting meat.

    Comment by rdr — August 23, 2007 @ 5:14 pm

  2. that dealing room that you mention in your comment will be out of a job within 1-2 years. No worries…change is on the way…

    Dealers must get trades in, and in short order a dealer will click to trade even if it was a transaction done with a salesperson.

    The next generation of trader will be with us in the states in about a year (post credit crunch).

    Comment by lacidar — August 25, 2007 @ 1:38 am

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