Portfolio Reconciliation for Derivatives Markets: Well Begun Is Half Done

by Anshuman Jaswal, PhD, January 2, 2014
Industry Trends
Asia-Pacific, EMEA, North America


Reconciliation has usually been reactive, driven by disputes. The trend in the last few years has moved the industry in a different direction. Firms have strengthened their operational capabilities as technology has advanced, and regular reconciliation is becoming an important means of reducing risk as well as meeting regulatory requirements.

In the report Portfolio Reconciliation for Derivatives Markets: Well Begun Is Half Done, Celent studies the growing importance of portfolio reconciliation and how firms are trying to make the best of what has been an operationally challenging few years.

Automating reconciliation is crucial for firms of all sizes because it allows them to obtain a better overview of the trading function. Regulation has been a driver, as has legacy platform rationalization, with firms relying on automation and streamlining of their reconciliation platforms. Having a number of legacy platforms across the trading function makes it difficult for firms to run their compliance optimally. Finally, in a tough economic environment, cost minimization is becoming a mantra across the board.

“Trading volumes in derivatives have been relatively high, and the gross credit exposure for OTC derivatives has shown growth in 2013,” says Dr. Anshuman Jaswal, Senior Analyst with Celent’s Securities & Investments Group and author of the report. “Hence it was important to improve portfolio reconciliation in a way that benefits operational capabilities in the derivatives markets, and this seems to have been the case.”

We begin the report with a discussion of the main drivers improving portfolio reconciliation practices. Next we analyze the recent performance of the OTC derivatives market and the continuing improvement in the frequency of portfolio reconciliation. We consider some of the issues with regard to portfolio reconciliation that have not been sufficiently addressed, and then provide a brief comparison of the requirements of the Dodd-Frank Act and the European Market Infrastructure Regulation (EMIR).

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
Tel: +1 212 345 1366

Europe (London)
Chris Williams
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary




Market Overview



Drivers for Improving Portfolio Reconciliation



Recent Performance of the OTC Derivatives Market


OTC Derivatives and Reconciliation in the Post-Crisis World


Issues with Regard to Reconciliation


Differences Between Dodd-Frank and EMIR




Appendix I: Comparison of ISDA Protocols Under Dodd-Frank and EMIR


Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


Related Celent Research


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