Staff Shortage At Root Of Errors In Derivatives Processing

Having hired documentation specialists to address the backlog in credit derivative settlements, banks are increasingly turning their attention to equity derivatives back office functions, recruiters say.

Michele Bloomfield, associate director at recruitment firm Joslin Rowe sees more need for people to process equity derivatives trades than credit derivatives trades. "There can be more sophisticated products on the equity side, and the technology in these areas is not as state-of-the-art in terms of dealing with these more complex products," she says.

A recent report in the Financial Times underlines the need for recruitment: Errors in equity derivative processing more than doubled last year to 20 percent. The market for these instruments is ballooning, with trading volume rocketing by 142 percent last year, according to the International Swaps and Derivatives Association (ISDA).

The surge in errors comes as dealers struggle to clean up market practices under pressure from regulators, who are concerned at the huge potential risks involved in privately traded derivatives markets if transactions are not properly documented. As a result, investment banks have been scrambling to make hires in these areas to meet the increased demand.