Post-trade is moving beyond its traditional role as a cost center as derivatives firms increasingly look to netting, automation and better data to improve capital efficiency and client service, according to new research from Acuiti and OSTTRA.

The report, Derivatives Post-trade: From Ancillary to Alpha, is based on a survey and interviews with 45 sell-side firms, including multinational banks, non-bank FCMs, regional banks and clearing brokers. The study found that 96% of firms with OTC derivatives activity and 89% of those participating in listed derivatives markets viewed better post-trade netting and optimization as a significant route to balance-sheet and capital efficiency.

“For decades, post-trade operations have been treated as a necessary utility – a cost centre focused purely on managing fragmented post-execution workflows. Today, however, the ground has shifted beneath our feet,” Erik Petri, Head of Optimisation at OSTTRA, said in the report’s foreword.

According to the findings, manual processes continue to absorb significant operational resources. Among firms surveyed, 66% said their listed derivatives operations teams spend more than 10% of their time resolving post-trade exceptions, fails and settlement breaks, including margin-call disputes and reconciliation breaks. Nearly a quarter said these activities consume more than 30% of their teams’ time.

The problem is also evident in bilateral OTC derivatives. Eighty-two percent said more than 10% of their bilateral OTC trades are still confirmed manually rather than electronically. For 47%, more than a quarter are manually confirmed. The report said the resulting delays have direct consequences for functions including margin calls and portfolio compression.

Processing delays can also create market and capital exposure, according to the report. Trade, give-up or allocation breaks can leave an unwanted position on a dealer’s balance sheet, while affirmation delays can result in unhedged exposure. Forty-two percent of respondents said their exchange-traded derivatives exposure could remain unhedged for more than an hour due to uncertainty in trade affirmation and confirmation processes.

Data quality remains another source of friction. Commissions and fee payments were cited by 64% of respondents as the main pain point caused by poor data quality, while 54% pointed to T+1 reconciliation and exception management.

Data quality is taking on additional importance as firms introduce artificial intelligence into post-trade operations. “Regardless of its purpose, the success of any AI project will be determined by the quality of the data that it can feed on,” the report said.

Thirty-two percent of firms surveyed said they already had AI in live production in post-trade operations, while a similar proportion were running active proof-of-concept pilots. By comparison, 7% reported live production deployment of distributed ledger technology. The report said AI has broader potential applications across teams and can be deployed internally, while the application of DLT to post-trade relies more heavily on industry collaboration and shared processes.

Capital Efficiency Strengthens the Case

Capital efficiency emerged as a key potential benefit of post-trade investment. Among firms active in listed derivatives, 89% said better netting and optimization would have a noticeable impact on balance-sheet efficiency and capital requirements, including 49% that expected a high impact. For OTC derivatives, 96% anticipated a noticeable impact, with 50% describing it as high.

If capital trapped in inefficient post-trade processes were freed up, respondents ranked improving client service and competitive positioning as their top priority for its deployment, followed by technology investment and infrastructure modernization. Liquidity and resource management were also highlighted, with 89% viewing the potential benefits of improved post-trade efficiency as significant. The report cited faster settlement, reduced margin drag and optimized collateral deployment among those benefits.

Regulatory capital requirements remain a concern. Just over three-quarters of surveyed firms were worried about the effect that regulatory developments including Basel IV, the G-SIB surcharge and Uncleared Margin Rules could have on capital requirements, with almost a third saying they were very concerned.

The research also found that post-trade capabilities are becoming more important in institutional client relationships. Eighty-six percent of respondents said superior post-trade transparency, speed and automation were either already a significant driver of client trading decisions or were becoming increasingly important. Forty-three percent said these capabilities were already a significant driver.

Interviews with buy-side representatives also found a focus on optimization. The report pointed to more client-led conversations between hedge funds and their sell-side counterparties about margin optimization and collateral management, alongside demand for data that allows clients to scrutinize the efficiency of their own trading operations and relationships.

For Petri, the opportunity lies in using post-trade infrastructure to move beyond processing and support the wider trading business: “When we do this correctly, we unlock genuine capital optimisation – genuine post-trade alpha. High-quality, ‘golden copy’ data allows firms to hedge risk more effectively, leading to tighter bid-ask spreads and superior client service.”

The image for this article was generated using AI.