Dealers move to tackle equity derivatives operational issues

Equity derivatives dealers are holding discussions on how to deal with operational issues facing their market, with 17 leading banks meeting at the London offices of UBS yesterday to discuss the matter. This was the first meeting of the Equity Derivatives Market Forum, which was set up to to develop a strategy to reduce economic and legal risk that it will ultimately present to the International Swaps and Derivatives Association.

An increase in trading volumes and product complexity, combined with a lack of standardisation in documentation in handling confirmations, has prompted the equity derivatives community to start formulating a plan to make trading their products easier and more cost-efficient. There is also a desire to increase the amount of automation in the trading process.

“As an industry, we’ve invested in new products and risk management,” said José-Luis DeJesus, executive director, operations at UBS in London. “We haven’t focused on processes, most trade confirmations are still done by fax.”

The Equity Derivatives Market Forum, a group that has grown out of lock-in meetings where dealers cleared up problem trades, will also be working to increase documentation standardisation for trade templates and master agreements, as well as to promote the development of electronic means to match and confirm trades.

“We’re going to be firming up our views to bring to Isda, and each house needs to look into electronic platforms to see how we can connect better,” said UBS’s DeJesus. “We’re at a crossroads. We need to be more decisive about engaging market utilities and making the next step.”

This initiative comes as the credit derivatives market has been trying to solve its operational problems for over a year.

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