Buy-side steps up

With financial markets focused firmly on risk reduction – a key priority for the G20 – the buy-side is turning its attention to the issue of counterparty risk. This parallels well with the OTC clearing requirements set out in the Dodd-Frank Act. In a reaction to the perceived risk inherent in trading leveraged instruments without adequate safeguards, the regulators stepped in to forcibly mitigate risks that were viewed by the market as the cost of doing business.

It’s a well-known fact that market participants would rather take the necessary steps on their own terms than have more regulations forced upon them. Perhaps learning something from the upheaval that Dodd-Frank has brought to the industry, or perhaps just covering their own backs, buy-sides are stepping up to the challenge. New functionality is growing up around counterparty testing and buy-side firms are expanding their due diligence review of who they are doing business with.

It’s a step in the right direction, but the sheer complexity and volume of regulations and compliance rules emerging in this post-crisis reform period means that buy-sides can no longer rely on manual risk control tasks. Only by implementing technology that allows them to achieve an efficient and scalable solution will they be able to meet their compliance needs as they continue to unfold.

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