A survey of Omgeo’s Americas Advisory Board has found that risk mitigation is a priority among operations professionals. Leading figures in the financial services industry were polled at Omgeo’s Spring Advisory Board on hot industry topics such as same-day affirmation (SDA) and whether the aftermath of Société Générale’s (SocGen) loss has lead to substantial risk mitigation reform.
The Omgeo Americas Advisory Board is comprised of leading investment managers, broker/dealers and custodians who are using Omgeo’s services and are active participants in a variety of industry associations.
Over 88% of respondents said that following the SocGen losses from unauthorized trading, they had taken immediate steps to improve communication between their front, middle and back offices in order to reduce risk. Such communication between counterparties is critical to risk management controls and the effectiveness of managerial procedures across all areas of the trading cycle.
While most respondents said their firms are being proactive in increasing communication between their front offices and operations, many feel the industry as a whole does not have the same level of preparedness. Over 50% of the respondents agreed that a SocGen-like incident is likely to re-occur at another firm within the next 24 months.
Another main risk mitigation concern has been the achievement of same-day affirmation for derivatives trading, as SDA has been shown to dramatically reduce the risk of failed trades. Recently, leading brokers from the Operations Management Group wrote to the Fed stating their commitment to achieving SDA for Over-the-Counter (OTC) derivatives. However, amongst Omgeo’s survey respondents, less than 50% agreed that a "best practice" initiative will be successful in preventing regulation. Over 66% of the respondents stated that regulation may be the only way to achieve broad adoption of SDA across multiple asset classes. In addition to reducing risk as a driver, respondents also cited significant cost reduction as a key benefit.
"It is very encouraging that nearly 90 percent of respondents are taking increased measures to protect their firms against risk," stated Lee Cutrone, managing director, industry relations at Omgeo. "The findings of our first Advisory Board Survey clearly indicate the importance of risk mitigation in the operational frameworks of sell side, buy side, and custodian firms alike. Particularly in such volatile times, we need to ensure that the market’s operational infrastructure is as shored up as possible. Indeed, it takes the entire industry’s cooperation, and the survey shows that this is understood across all parties."