OMG, OTC derivatives need IT

Bolstering staff in the OTC derivatives market hasn't shifted the confirmation backlog, and financial firms are set to invest millions in IT solutions.

A new report from TABB Group predicts that spending on automation in the OTC derivatives space is set to rise from $70m in 2008 to $120m by 2010.

Mid-tier investment banks, hedge funds and other trading firms have lagged behind in implementing technology and the number of backlogged confirmations surged by 250% from June to August 2007, says the research.

But this is set to change, reckons Kevin McPartland, senior analyst at TABB Group: "For OTC derivatives, a new day has finally dawned. It's a process so critical and complicated it's simply crying out for automation."

The three foremost derivatives classes - interest rate swaps, equity and credit derivatives - have soared to 255 trillion, according to the International Swaps and Derivatives Association.

Abigail Waudby, team leader, business technology at recruiters Project Partners, says: "In the OTC derivatives space we are seeing a need for business analysts, project managers and change managers in investment banks. These are not short-term initiatives, but the overturning or streamlining of trade processing systems."

Clearly it's needed. McPartland says one of the major investment banks surveyed estimated that 90% of its non-vanilla OTC derivatives trades were still sent by fax.

A separate study by fund management consultancy Morse highlights how the surge in derivatives trading has left the investment industry reeling.

Miriam Edelman, principal consultant at Morse, says: "The challenge of supporting derivatives, structured products and alternatives is usually seen as primarily technical and our respondents are certainly concerned about finding good systems to support their needs."

And fund managers are looking for IT professionals too, reckons Dominic Hilleard, director of permanent at tech recruiters Cyberteam: "We're seeing some quasi-development roles and project manager roles being created. A lot of the guys will have a pure developer background - with SQL skills a premium - but the roles are more about data analysis and price modelling."

Waudby says that an experienced project manager in this space in an investment bank can bring in 75k-85k. Developer roles in investment managers pay around 50k, reckons Hilleard.