SunGard is launching a new industry utility for post-trade futures and cleared over-the-counter (OTC) derivatives operations which aims to help global capital markets firms better adapt to new market challenges and to respond to post-financial crisis cost pressures. 

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

“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,” said Tim Stack, head of agency derivatives services at Barclays.

This utility is designed to enable derivatives brokers, including futures commission merchants (FCMs), to achieve greater efficiency, reduce operational risk and total cost of ownership (TCO) by leveraging economies of scale in middle and back office processing and technology. 

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

“Post-trade cleared derivatives processing is highly commoditised, providing little differentiated value to each firm at increasingly higher costs due to today’s regulatory environment. SunGard’s post-trade derivatives utility will help transform the cleared derivatives middle and back office across the entire industry, resulting in a more sustainable operating model and cost structure for the future, said Brian Traquair, executive vice president of SunGard Financial Systems. 

According to a Tabb Group study, the challenging market conditions in recent years has resulted in a reduction in the number of CFTC-registered FCMs by 49%. The Tabb Group study also found that these ongoing structural changes and regulatory pressures are driving remaining FCMs to look to more efficient and cost-effective ways to manage their back office operations.

“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 will positively change the economics of the industry by increasing efficiency, simplifying regulatory compliance and altering the cost structure for industry participants," said Larry Tabb, founder and CEO, Tabb Group. 

"Reframing the existing business model will enable FCMs to focus efforts and investments on clients and risk-facing activities. The introduction of a derivatives utility is expected to be transformative because it will essentially re-define the cleared derivatives operating model for the industry and drive sustainable efficiency improvements through standardization and best practice implementation, automation and scale, as well as ongoing TCO savings for utility customers.”

SunGard will provide utility customers with derivatives clearing operations and technology services for trade clearing, trade lifecycle management, margin processing, brokerage, reconciliation, data management and regulatory reporting. 

The utility technology platform will be underpinned globally by current and future SunGard solutions, such as its global back-office processing system for listed and cleared OTC derivatives, covering more than 160 cleared derivatives markets in 38 countries.