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Buy-siders struggling with derivatives processing, poll shows

First Published 29th August 2013

A survey by SimCorp painted a picture of traditional buy side firms struggling to deal with derivatives processing.

More than four out of five North American-based buy side firms are forced to come up with work-arounds to support derivatives trading and a large share of them said the ad-hoc solutions compromised the accuracy of client reports, according to a survey by investment services company SimCorp.

The poll, based on responses from nearly 135 executives at 84 North American-based capital markets firms, showed many buy-side firms still relied on legacy systems even as they seek to generate alpha through alternative investment strategies.

When asked if their firms need to create workarounds to support derivatives in current middle- and back-office operations, 82% of respondents said yes. Additionally, more than one-third of respondents said the accuracy of client reports was compromised due to the need for extensive workarounds.

Buy-side respondents also said legacy systems hampered new product time-to-market. Fifty-three percent said their systems required at least two months to model and launch new derivatives products and sometimes significantly more. For 22% of firms, this takes a minimum of four months. Fewer than one in four (24%) said they could roll out a new offering within one month while 4% were entirely unable to launch new products using current systems.

"The risks associated with legacy technology platforms are real," Paul Migliore, CEO of Citisoft Inc, said in the news release announcing the poll results.

Migliore, who added that traditional, long-only investment platforms were designed to support specific sets of functions such as order management or accounting, added: "The demand for alternative assets and innovative products has outpaced the technology platforms that are currently utilised in most investment management firms."

David Kubersky, managing director of SimCorp North America, said the number of buy-side firms still attempting to process derivatives on disparate legacy systems was "troubling" given system deficiencies that were exposed during the financial crisis.