The introduction of new regulations to ensure greater transparency in European derivatives markets is set to spur changes in the use of technology, as automated workflows are introduced to enable improved clearing, collateral and trade reporting.
According to research from financial market analysts TABB Group, the European Market Infrastructure Regulation (EMIR), which came into force in March, is driving growth in the levels of data trading firms are required to collate and retain, as regulators aim to increase the stability of the over-the-counter (OTC) derivative markets.
In the report titled ‘OTC Equity Derivatives: Harnessing the Liquidity’, senior analyst Rebecca Healey said that automating workflow requirements to deal with regulations will lead to a “back office revolution” in the world of European OTC equity derivatives as straight-through processing (STP) comes into play.
It is said that automating workflows will not only allow firms to meet regulatory requirements as part of EMIR, but will also open new opportunities around hedge risk, calculate margin and source liquidity due to the increased use of data and technology.
According to Healey, following changes to regulations with greater focus on pre-transactional risk, automated workflow processes will be vital to efficient management of collateral for those obliged to hold more collateral for conducting OTC transactions.
“Without an optimal way to analyse the availability of collateral, there will be no way to ensure the ability to trade,” Healey said. “As technology evolves and automation of processes advances, those that offer the seamless transition from the traditional OTC model to full automation look set to win first; market participants who chose to equip themselves and engage will have the greatest opportunity to harness dwindling liquidity.”