As regulators in North America and Europe push over-the-counter derivatives markets into central clearing, a raft of challenges and opportunities are in store for middle- and back-office operations.

Tasks include managing variation margins and working with external vendors and exchanges to be glitch-free in File Transfer Protocol (FTP) systems; calculating margins while testing interest-rate swap trades through a Futures Commission Merchant (FCM); enhancing IT testing for client reports, both internal and from the Central Counterparty Clearinghouse (CCP); and risk management and collateral segregation, which one market participant described as “a ticking time bomb.”

The new demands of clearing for listed derivatives and OTC instruments were in focus at the Financial Technologies Forum’s DerivOps Chicago conference this week.

Citibank’s Katie Nallon, Nuveen Investments’ Kevin Walker, and LCH.Clearnet’s Nicholas Varelakis weighed in on a panel moderated by Citi futures and OTC clearing director Neil Monaghan. The operational focus is from OTC to cleared OTC to futures, and how the swap is combined into daily cash flow, according to the panel.

“When you’ve got $225 billion under management with a meaningful portion of that in derivatives, and a staff of four to five people, you are going to have high volumes to settle every day and volumes in collateral movements” heightened by the consolidation of OTC and futures, said Walker, derivatives administration manager at Chicago-based Nuveen.

Selection decisions on FCMs, CCPs, and other criteria are affecting clients’ readiness and comfort. Nallon cited a “what if” tool at Citi that helps clients with the decision on where to clear.

Along with understanding changes in collateral requirements, IT, and fees  – as well as key decisions pushed forward to the front office and the point of trade – the back office continues to work on rebalancing. According to market participants, once a trade is cleared, it’s cleared and there’s no going back, so systems testing is critically important.

Changes in operational mandates and best practices in a new world impact staff roles. Operations officers say they are busy helping their teams understand the flow coming in from clients, to rectify any order rejections. Nallon, a vice president at Citi, noted the increased training required for the client relationship managers and help desks to service clients as a single point of contact.

“Keeping operations aligned to prioritize the demands of the sales side” is critical in any enterprise, Nallon said. “Onboarding consumes most of our day” in CRM centers, she added.

Robin Moody with UK-based software provider Thunderhead.com  talked about documentation challenges and reduction in operational risk, citing money breaches as one such risk that cannot be tolerated. With customer experience in focus, Moody described ways they have streamlined service to ‘onboard’ a new account, spanning relationship docs through trade documentation.

Moody said Thunderhead.com  maintains data points in documentation throughout the negotiation lifecycle which can then be fed downstream through systems for collateral management and risk management.

If the industry can adopt already widely-utilized onboarding and repapering processes, soon there will be an app to download for selecting conditions, negotiating terms and opening an account from your tablet, Moody projected.