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Over-the-counter (OTC) derivative transactions have developed rapidly since they were introduced in the early 1980's. The market for swaps and options on interest rates, foreign exchange, commodities, energy and other underlying assets is being driven by the need for risk reduction by enterprises and makes up a significant portion of the earnings of major financial institutions. By 2003, the OTC derivatives market was estimated at almost $150 trillion in notional value, and growing at over 25 percent annually.
Because of the wide variety and rapid change in the products that are traded, automation has historically been a challenge. The communication and confirmation of details of these transactions between counterparties has been highly manual, and therefore error-prone. Firms typically exchange trade details via fax, and humans read these faxes to compare them with their own firms' representations of these transactions.
Whether for initial confirmation of the trades, or for purposes such as settlement or collateral matching, the lack of an automated mechanism for communicating this information causes significant expense and operational risk, as well as rigidity in business processes. The lack of automation has led to trades needing to be rebooked due to missing info (14 percent according to ISDA) and long settlement time (T+5 vs. T+1 for equities). With the continued growth of the derivatives market, these issues are only getting worse.
The introduction of XML represents a technology shift that holds the promise of automating OTC derivatives transactions. Financial Products Markup Language (FpML) is an XML-based standard being driven by the International Swaps and Derivatives Association (ISDA) to streamline the processes supporting trading activities in the financial derivatives domain. FpML is the business information exchange standard for electronic dealing and processing of financial derivatives instruments. It establishes a new protocol for sharing information on, and dealing in swaps, derivatives and structured products using XML.
Ipedo XIP integrates, manages, analyzes, and assembles internal and external real-time data flows to streamline operations, expedite reporting, and facilitate finding new revenue opportunities.
Ipedo OTC Derivatives Accelerator
Ipedo helps manage OTC derivative trades, trade histories and other critical trade related data to better manage risk, reduce operational costs, and reduce capital costs. Through a set of powerful XML-based integration, information management and custom reporting features, organizations can use Ipedo to centralize the collection and management of financial information needed to automate the processing and reduce risk.
Ipedo acts as a platform that works in conjunction with an organization's existing systems to access relevant financial data in real time. The Ipedo OTC Derivatives Accelerator is a set of components built specifically to process FpML and related custom XML to perform critical OTC derivatives functions. With Ipedo, firms can automate information aggregation, integrate more trade and risk data, perform analysis across trade documents, and allow for long-term "active" archiving for compliance needs.
Benefits
- Better view of trades and customers using advanced XML processing
- Faster time to market with new trade types through more timely information
- Improved risk reporting through integration of more sources and detail
- Improved policy enforcement using real time validation and long term searchable archives
- More efficient internal processing of trades for expedited settlement
- Global integrated view of risk through integration across business lines
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