Some firms in the credit derivatives market nearly doubled their investment in technology to support credit derivatives operations and product control last year and are expected to spend similar amounts in 2006. The market's technology expenditure, estimated to be up 25% for banks and up by 55% for smaller market players, was necessary to balance out the operational problems the industry endured, said Jonathan Davies, partner at Reoch Consulting. Most of the technology expenditure was invested in trade capture systems and tools, and this is focus expected to continue into 2006, said Davies. The findings and statistics come from Markit's annual Scorecard, which is produced in conjunction with Reoch and from data collected from 23 banks and broker/dealers. The research found technology expenditure rose from $24.6 million in 2004 to $32.7 in 2005.
 
Trade capture is a logical area in which to invest. By entering the trade correctly initially, operational problems downstream, such as mismatched transactions, are avoided, said Davies. Firms are also pushing traders and sales staff to input the trades themselves, which also reduces operational problems.  Generally, operations staffers are focused more on detecting breaks and mismatches when the trades were close to trade date, which reduces fails, he added.
 
The Scorecard also found that labor resource pools had improved—growing by 32%. This is a significant improvement in operations, which suffered from the lack of adequate staffing in the early part of 2005.
 
Overall, the results of the scorecard found the market in good health, said Davies. The market volumes grew by 89% so more work and investment towards improving operations this year by pushing buyside clients to get join the Depository Trust and Clearing Corp's derivatives confirmation matching service, Deriv/SERV.