Canadian Investment Firms Identify New Regulations as Key Driver of Change to Middle and Back Office Processes
While industry has made significant progress, attention is needed to prepare for movement of OTC derivatives to exchanges
Toronto/New York/Boston/London – 12 June 2012 – Omgeo, the global standard for post-trade efficiency, announced today that while Canada has made significant strides in improving the efficiency of its trading markets, there are gaps in operational processes, leaving some firms inadequately prepared for the onslaught of new regulations, according to a recent industry survey commissioned by the firm. The survey, conducted by Stratix Consulting, included interviews with the heads of operations departments from 15 Canadian investment management firms with CA$10 billion or more in assets under management (AUM), totaling in CA$1.4 trillion AUM.
According to the survey, approximately 60% of participants identified increased monitoring and reporting requirements as drivers of change to middle and back office processes over the next 12-24 months. Almost half of respondents anticipated that the US’ Dodd-Frank legislation would be a major or significant driver of back office operational changes, while admitting that further information was needed before they could quantify how to best prepare.
Regulatory initiatives around the use of electronic trading processes for over the counter (OTC) derivatives, the implementation of trade repositories and increased surveillance were identified as having the highest potential impact on back office systems. In addition, the impending Legal Entity Identifiers (LEI) initiative, requiring unique identifiers for all parties associated with OTC derivatives instruments, with expansion into other asset classes expected at a later date, was identified by 66% of respondents as a major or significant factor in the need to improve back office processes, yet very little activity was underway to define what those changes might be.
The industry has made significant strides in achieving straight through processing (STP) and meeting the trade matching requirements of 90% of trades matched by noon on T+1 as required by Canadian Securities Administrators (CSA) regulation.
Domestically, the market is increasingly automated, with 93% of investment managers using electronic trade matching solutions for equity trades and 80% for fixed income trades. For cross-border transactions, 80% are using trade matching for equities and 74% for fixed income.
Derivatives continue to get more automated with 20% of firms using local or central matching, up from only 10% in 2010. However, 67% are still using phone, fax or email for derivative trade matching. While derivatives are only being used by 1.5% of respondents, that amount is also double what it was in 2010, showing increased interest in this asset class.
Commenting on the survey findings, Matthew Nelson, Executive Director of Strategy at Omgeo, said, “Canada has long been at the forefront of realizing the importance of efficiency in the trade lifecycle, and the fact that all respondents are set to meet the CSA’s trade matching requirement by year end is a significant achievement. The market now needs to turn its attention to new regulations and preparing for the move of OTC derivatives to exchanges, however, if they want their competitive foothold to continue under the new regulatory landscape. With derivative use growing, more automation in this asset class is going to be required to both manage risk and maintain compliance with new regulatory requirements.”
Bob Smythe, consultant for Stratix Consulting, added, ”Canadian investment managers are confident that if trade settlement in North America moved to two days (T+2) from three, in response to Europe proposing a trade settlement standard of two days by 2015, that their systems and processes could accommodate T+2 settlement.
We continue to be impressed by the efforts investment managers have made to improve back office systems. We are confident that ongoing efforts by all industry parties will result in the regulatory requirement of 90% of trades being confirmed by noon on T+1, and that central trade matching will be a significant facilitator in making this happen.”
The full results of the survey can be found in a discussion paper titled “Canadian Investment Management Operations Challenges and Strategies Survey 2012” at www.omgeo.com/canadaresearch.
About OmgeoSM
At Omgeo, we are the operations experts, automating trade lifecycle events between investment managers, broker/dealers and custodian banks. We enable 6,500 clients and 80 technology partners in 52 countries around the world to seamlessly connect and interoperate. By automating and streamlining post-trade operations, we enable clients to accelerate the clearing and settlement of trades, and better manage and reduce their counterparty and credit risk. Our strength lies with our global community and our ability to adapt our solutions to enable clients to realize clear returns on their investment strategies, while responding to changing market and regulatory conditions. Across borders, asset classes, and trade lifecycles, Omgeo is the global standard for operational efficiency across the investment industry. Formed in 2001, Omgeo is jointly owned by the DTCC and Thomson Reuters.
About Stratix Consulting
Since April 2011, Stratix Consulting has been a wholly owned affiliate of SunGard. As SunGard Global Services in Canada, we are a leading provider of IT consulting services to Canada's financial services companies. Specializing in capital markets, wealth and investment management, and insurance, Stratix Consulting has delivered IT management consulting and implementation services for customers since 1996. SunGard Global Services combines business consulting, technology and professional services for financial services firms, energy companies and corporations. Leveraging SunGard’s global delivery model, more than 5,000 employees worldwide help customers manage their complex data needs, optimize end-to-end business processes and assist with systems integration, while providing full application development, maintenance, testing and support services. For more information, please visit www.sungard.com/globalservices/learnmore. |
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