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Derivatives

Default Swap Roll Dates Push Ops Teams To Pain Barrier

Major credit derivatives houses are reviewing their back office procedures because of the huge volumes of credit-default swaps needing to be settled on particular dates. Earlier this year the default swap market switched to quarterly roll dates, where trades mature and settle once a quarter, rather than when they are traded. This has resulted in firms, such as Deutsche Bank, processing an additional 12,000 payments on a single day each quarter, according to Keith Rake global head of derivatives operations at Deutsche Bank in London.

The long-term solution is for a clearing house, such as SwapClear, to extend its services from interest-rate derivatives to credit-default swaps, but this is unlikely to happen in the short term.

More immediate solutions are to start pre-processing the trades several weeks early so there is less to do on the actual roll date, explained Rake. An alternative is to maintain the quarterly maturity dates, but settle trades as they are executed. The final payment period would be shortened to finish on the relevant quarterly date.

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