Next year, the back office will be the place to be for technologists

Prising technologists in investment banks away from exciting front office related projects to focus on back office IT developments has always been a hard sell. However, with more firms ramping up efforts to overhaul clearing technology in advance of looming regulatory deadlines next year, many people would do well to consider a switch across.

Global regulators are pushing for centralised clearing of the OTC derivatives market, which is causing a technological headache across Wall Street and the City. The trade processing side of the business has always been considered a cost centre to most banks and has therefore seen under-investment, leading to a large amount of manual intervention and inefficient processes.

This is changing; a recent report by capital markets consultancy Tabb Group suggested that $3.3bn will be spent on OTC derivatives IT this year. Regulators have kick-started a "technology revolution", according to the report's author, Kevin McPartland.

Both the Dodd-Frank Act in the US and the European Market Infrastructure Regulation (Emir) want to see a commitment to centrally clear all standardised OTC derivatives by the end of 2012.

There remains a question mark over whether banks will build or adapt their in-house systems or by off-the-shelf products from third-party vendors, such as Calypso or SunGard. Tabb thinks there will be an even split, but banks are now starting to recruit for these projects.

"The biggest market participants will take a best-of-breed approach, utilising the best off-the-shelf products they can buy and tightly integrating them with systems that are built by in-house staff," says McPartland.

Morgan Stanley, for instance, is recruiting across a range of levels for its Clearing Operations Project Group, and Deutsche Bank is hiring project managers for clearing initiatives. Citi is also looking in-house for its OTC derivatives clearing technology and we’ve already pointed to the fact that Barclays Capital, J.P Morgan and UBS have hired for this area previously.

"There's definitely not a hand over fist approach to recruiting technologists for OTC derivatives projects and some are being carried out centrally in the US," says one IT in finance recruiter. "However, it's definitely being touted as an area of growth for 2012."

Currently, banks in Europe are battling the new regulations, despite the pre-emptive investment in technology, suggesting that the cost is prohibitive in the midst of a the widening eurozone crisis. Not surprisingly therefore, most firms are asking for someone with a "practical knowledge of the changing regulatory landscape".