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Impact of Derivatives on Reference Data Management

They may be complex and burdened with a bad reputation at the moment, but derivatives are here to stay. Although Bank for International Settlements figures indicate that derivatives trading is down for the first time in 10 years, the asset class has been strongly defended by the banking and brokerage community over the last few months.

The industry is, however, on course for a significant overhaul of the regulatory regime governing the OTC derivatives market, both in Europe and the US. This, of course, means that the post-trade processing of these instruments is set for big changes. Credit default swaps (CDSs) are the first of the credit derivatives to be ushered onto clearing counterparties in a bid to reduce counterparty risk, but they will likely not be the last.

Moreover, the market is also awaiting the introduction of an alternative standard to the current five character Options Price Reporting Authority (Opra) codes next year. Earlier this year, the Options Clearing Corporation (OCC) was named as the operator of the new options symbology system, which has been estimated to cost the industry around US$250 million to introduce.

All of these changes are likely to have a significant impact on the data management systems for these complex instruments, requiring the introduction of new processes and procedures. A challenge indeed for the vendor community.

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