With changes to over-the-counter (OTC) derivatives trading
and clearing approaching in the US and Europe, Hamish Purdey, CEO of technology
provider FFastFill, has seen buy- and sell-side firms boost their risk analysis
the last couple of years we’ve seen more interest in our risk management
products. Despite being primarily a broker tool, an increasing number of
buy-side clients want to know their full standardised portfolio management of
risk (SPAN) margin,” says Purdey.
difference in risk profiles of OTC and listed derivatives will force trading desks
to monitor risk in real-time, to ensure they hold enough collateral
against their positions, which Purdey sees as a major driver behind firms using
data to optimise derivatives trading strategies.
provides international front, middle and back office technology through
software-as-a-service (SaaS) solutions, in addition to risk monitoring
functions, primarily for derivatives trading.
Soon, major changes to derivatives clearing will come into
force as part of efforts on both sides of the Atlantic to add clarity to the
opaque derivatives market, which regulators believe exacerbated effects of the
2008 financial crisis.
Europe-wide EMIR regulation will force OTC derivatives to be
cleared through central counterparties (CCPs), with similar rules coming into
force in the US through legislation in the Dodd-Frank Act.
These changes constitute the most rigorous regulatory
activity the derivatives market has ever seen, and firms like Purdey’s FFastFill
will have to amend technology to fit the new rules.
FFastFill derives 90% of its revenue from firms engaged in
exchange-traded derivatives, and Purdey hopes to leverage the company’s
experience in listed derivatives to help clients ride the impending wave of new
trend we’re seeing is that fees will go up, especially as regulatory change
occurs, forcing reporting and compliance costs upwards. Having the ability to
connect to multiple brokers over one network, while meeting regulatory needs,
will save buy- and sell-side firms money and integration time,” says Purdey.
ensure the firm is allocating development resources appropriately, FFastFill regularly
engages with the Commodity Futures Trading Commission (CFTC) through industry
bodies to see how exactly it and its clients will be affected.
client wishes creates constant challenges for all software companies in regards
to customer and strategic initiatives, especially in environments of
significant regulatory change such as now,” says Purdey.
A major trend crystallising among brokers is the move to
outsource front-, middle- and back-office systems, which may offer operational
advantages the buy-side should be aware of, according to Purdey.
one central technology platform means upgrades can be quicker and more reliable
than in-house resources while avoiding version control issues,” he says.
like FFastFill’s also look to extend their network by creating strong links
between buy- and sell-side users, which in turn attracts further clients as the
attitudes are changing regarding outsourcing and there is a clear trend of
companies looking to further outsource technology operations and focus on their
core business,” says Purdey, who belives the sell-side will increasingly turn
to SaaS platforms as individual firms’ trading systems decline, to boost cost
efficiency and capitalise on value-added services.
platforms developed in-house will and are currently under significant cost
pressure, and moving to software-as-a-service platforms will increase,” says