SunGard is launching an industry utility for post-trade futures and cleared over-the-counter derivatives operations, with the aim of helping global capital markets firms better adapt to new market challenges and to respond to post-financial crisis cost pressures.

This utility’s mission is to enable derivatives brokers, including Futures Commission Merchants achieve greater efficiency, reduce operational risk and total cost of ownership by leveraging economies of scale in middle and back office processing and technology.

“What SunGard has done for many years is maintain a lot of the infrastructure that allows the FCMs to communicate with clearing organizations and the exchanges,” Brian Traquair, executive vice president of SunGard Financial Systems, told Markets Media. “This takes the concept one step further.”

With well over half of post-trade derivatives processing replicated in each clearing firm, consolidating a majority of these non-differentiating operations into a single shared industry utility can positively affect the economics of the industry by increasing efficiency, simplifying regulatory compliance and altering the cost structure for industry participants.

“If you look at the middle and back office of the FCM, we estimate about 75% of the work they’re doing is something that’s relatively common across their competitors,” Traquair said. “It has no real proprietary advantage. What we’re going to do is reduce the cost of that 75% of the operations cost by putting it all in one place, acting as a common shared function.”

Barclays, which will become the utility’s first customer, will migrate specific futures and OTC derivative clearing operations and technology processes to the utility, and a number of Barclays employees will transfer to SunGard.

“Barclays has always taken a proactive approach to managing its business and adapting to regulation,” Tim Stack, head of agency derivatives services at Barclays, said in a release. “By taking this leadership position with SunGard, we are able to provide our clients with a practical solution that keeps our products and services at the forefront of the industry. We are confident that this utility is a transformational change for the industry, and that it will help provide clear benefits to our clients, to Barclays and to the industry as a whole.”

Increased regulations such as those mandated by the Dodd-Frank Act (DFA), European Market Infrastructure Regulation (Emir) and Basel III have created an operating environment that continues to erode profit margins.

“Each of the firms that we’ve talked to see this is an ever-increasing regulatory burden,” said Traquair. “There are many things that if done once can be shared by many. One of the advantages SunGard has had for a number of years is that if we have one connection to CME that can be shared by all our customers, so every time the CME or anybody else makes a change, we do it once, as opposed to a hundred times. The same thing’s true for regulatory reporting.”

SunGard will provide utility customers with derivatives clearing operations and technology services for trade clearing, trade life-cycle management, margin processing, brokerage, reconciliation, data management and regulatory reporting. The utility technology platform will be underpinned by current and future SunGard products, such as its global back-office processing system for listed and cleared OTC derivatives.

“This will be a business within SunGard, and able to leverage the existing post-trade derivatives technology in SunGard,” said John Avery, head of managed services in SunGard’s capital markets business. “Many of the industry are already customers of SunGard software, and we are looking to those customers and FCMs as the key market here. Ultimately, the utility will involve working with SunGard to transition operational activity and additional technology activity that aren’t served or supported by SunGard, by transitioning them over to SunGard.”

Featured image by maurogrigollo/Dollar Photo Club