By Simon Miller

Listed derivatives have placed significant pressure on financial institutions to automate their post-trade processes according to research from the TABB Group.

According to TABB, as the role of listed derivatives in institutional investor trading expands, the rising volumes and processing complexity are forcing firms to address inefficiencies in their existing manual processes.

According to Andy Nybo, a head of research at TABB and author of the report Processing Complexity: Back Office Challenges of Listed Derivatives, the cost of managing this increasing complexity through manual processes is no longer sustainable, as portfolio strategies move beyond traditional equity and fixed-income investments into derivatives instruments, internal processes across the front and back office need to be revamped.

“The increased sophistication of investment portfolios is creating an entirely new set of challenges that begin to manifest themselves when volumes rise and manual post-trade processes simply cannot keep up with trading desk’s demands,” he commented.

According to TABB, the listed-derivatives markets are one of the few bright spots in the global financial markets at a time when regulatory pressures are forcing trading away from over-the-counter (OTC) protocols. Exchange-traded derivatives (ETD) volumes are growing around the world, with trading of exchange-traded futures and options contracts growing at a compound annual growth rate (CAGR) of 21% since 2003.

“Sell-side firms are realigning their business models, turning to technology as an enabler for more efficient operations, better customer service and ultimately support increased revenues, investing $1.2bn (£0.74bn) to support post-trade processes for ETDs in 2012,” says Nybo, adding that buy-side firms are investing an additional $383m in post-trade processing technologies for their internal initiatives.

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