The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
Neil Wright, New York-based senior vice president for investor services, says the firm has invested an undisclosed sum on a new system to replace many manual processes, from confirmations to valuations to settlement.
Although he would not quantify State StreetÆs estimate of the OTC derivatives industry, he says the bank now processes these for over 1,000 clients worldwide. Growth in OTC derivatives has continued to grow steadily this year, with no discernible impact from the summer crisis in subprime mortgage-backed securities or structured products.
Interest-rate derivatives remain by far the most used derivatives, comprising some four-fifths of the global industry (including both buy and sell sides), but credit derivatives are still the fastest-growing segment. ôCredit default swaps including those used in CDOs continue to see the most growth,ö he says.
The derivatives market worldwide is growing five times the pace of global equity market cap, and for State Street clients, derivative volumes are growing on average 150% per annum.
In response to this relentless growth, State Street has had to revamp its systems and enhance its service by building regional æcentres of excellenceÆ.
First, the IT. Work on the new platform began last year and the first client will pilot it before the end of this year. It is meant to process derivatives of all stripes throughout their life cycle (the average tenor of interest-rate derivatives is 4-5 years, Wright says).
ItÆs based on a computer protocol called FPML, financial product markup-language, which is an ubiquitous standard among the sell and buy sides. This means the system will be easy to integrate with counterparties, from utilities such as depositories to brokers and investors. It replaces older systems that were designed with vanilla stocks and bonds in mind, not exotic CDS instruments.
Second, the client service. The best example of what this entails is in Europe, where the bank now has offices scattered around the region (Dublin, London, Luxembourg, Munich and Paris), some larger than others. The firm suspects two well-staffed offices may do a better job than five smaller ones, because these teams will be easier to supplement, and wonÆt lose their way should a key staff member move on.
In Asia, the firm services clients out of Hong Kong, Singapore, Sydney and Tokyo. Wright says his team will look at time zone, distance and language requirements to determine how it can best support State StreetÆs clients. The idea is not to consolidate for its own sake but take a look at ways to ensure the bankÆs clients are happy.
Wright joined the firm earlier this year and is on his first Asia trip in this capacity, taking some time out to meet with AsianInvestor. He built his career in derivatives operations on the sell side, with careers at JPMorgan Chase and more recently Citigroup in New York. He is charged with supporting the development of State StreetÆs technology as well as its worldwide sales effort targeting institutional investors and investment managers.
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