The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

IT Spend in Derivatives to Soar; Pricing and Analytics a Key Driver

Share article

It will come as no surprise to learn that Wall Street made more money from derivatives products and structured instruments in the first quarter of 2006 than ever before. Into the growing hype about derivatives wades TowerGroup this month, with a raft of reports on the subject, including predictions of annual growth rate in derivatives IT spend of 18 percent annually. But what impact will the burgeoning derivatives business have on market and reference data?

According to TowerGroup analyst Dushyant Shahrawat: “Market and reference data have enormous significance in the derivatives market, as this business is very data hungry and consumes massive amounts of it for pricing, trading, processing and reporting of derivatives. A huge number of market data feeds across asset classes are required for pricing derivatives. For example, pricing an equity option would require not only stock prices, but option prices of other maturities and other comparable derivatives.”

In one of the three reports on derivatives Shahrawat produced in September – Technology Demand in the Derivatives Market: Poised for Growth – the analyst writes in a section on Analytics, Pricing and Data Provision, “Analytics and pricing of derivatives are critical functions in the derivatives market and complex tasks to perform. Valuation and analytics are closely related functions that require many similar inputs and data feeds. For both pricing and analytics, the challenges are speed, product coverage and adequate flexibility and openness of the system.”

A lot of the work done in the cash business is transferable to the derivatives market, says Shahrawat. “The challenge though is there are different vendors playing in the two markets which makes it difficult to take work from one area and transfer it to the other.”
TowerGroup warns that if derivatives automation doesn’t improve, the market will seize up. Fortunately it looks as if automation will improve considerably, if TowerGroup’s predictions are correct. It reckons total IT spending in capital markets on derivatives software and related services will increase from $3.6 billion in 2006 to $5.75 billion by 2009.

Related content

WEBINAR

Recorded Webinar: How to leverage the LIBOR transition to improve your data management game

The transition away from LIBOR (London Interbank Offered Rate) is well underway, but there remains considerable ambiguity around how the final stages will be executed – especially with regards to benchmark replacements in markets outside the UK. What are the options, where are the uncertainties and what stage have firms reached in their preparations? The...

BLOG

Live at Data Management Summit USA Virtual – Day Two Keynote and Q&As

A-Team Group’s Data Management Summit USA Virtual Day Two was based on the theme of best practices for data driven strategies in today’s new normal. The day started with an informative live keynote from Arvind Joshi, director of data management at Scotiabank, on how to establish data quality for analytics. This was followed by three...

EVENT

RegTech Summit Virtual

The RegTech Summit Virtual which took place in June 2020 was a huge success with over 1,100 delegates registered. We are currently working on our plans for 2021 and we hope to be back with an in-person event. Whatever the future holds you can guarantee our 2021 event will be back with an exceptional guest speaker line up of Regtech practitioners, regulators, start-ups and solution providers to collaborate and discuss innovative and effective approaches for building a better regulatory environment. Can't wait until 2021? make sure you sign up to our RegTech Summit Virtual, November 2020. More info...

GUIDE

Managing Valuations Data for Optimal Risk Management

The US corporate actions market has long been characterised as paper-based and manually intensive, but it seems that much progress is being made of late to tackle the lack of automation due to the introduction of four little letters: XBRL. According to a survey by the American Institute of Certified Public Accountants (AICPA) and standards...