Alternative Investments/Derivatives: Explosive Volumes Are 'Hot Topic' Among Industry Leaders at ISITC Conference; ISITC Announces Endorsement of FpML Standard.

SCOTTSDALE, Ariz. -- Industry leaders are in Scottsdale, Ariz., Sept. 10 to 12, to discuss one of the most visible trends in the securities industry today: the explosion of OTC alternative investments/derivatives. The forum -- the International Securities Association for Institutional Trade Communication (ISITC) September Conference -- brings together multiple constituents, including portfolio managers, investment managers, custodians, brokers, and service providers to address the unique factors driving the increase as well as the challenges, opportunities and solutions posed by the trend.

"We are witnessing a very real transition in the alternative investment landscape," says ISITC Chair Steve Goswell. "Today's volumes clearly mandate improvements in the levels of automation. As ISITC is well positioned to drive this agenda in the securities marketplace, we are pleased to profile many of the relevant issues at the September Conference." This forum, continues Goswell, provides a "comprehensive look" at the topic so that "we can shed light on the real-world issues faced by those members of the securities industry most affected day to day."

Highlights from Monday's sessions include: the factors that are driving the growth of OTC derivatives from a portfolio strategy standpoint; the regulatory scrutiny that the derivatives market has undergone and the resulting impact on various brokerage firms; and STP in the middle and back office environments, with special emphasis on market solutions for automating the handling of new alternative investments.

"We've seen explosive growth in the use of Derivatives by Hedge Funds and even, more recently, by traditional asset managers," said Neil Burke, vice president in the Client Relationship Management Program at Morgan Stanley, and co-leader of the first conference session, along with Peter Stutz of Western Asset Management Company. "Opportunities abound as derivatives afford portfolio managers another entry point into the marketplace to enhance returns. Challenges are present as well, including the increased regulatory focus over the last 18 months, specifically in the credit markets; this phenomenon is one factor that is driving the need for automation and STP solutions for processing derivatives."

In a follow-up forum, panelists from four different service providers in the OTC derivative market space zeroed in on solutions to accommodate exploding volumes. Featuring representatives from SwapsWire, DTCC, Markit and SWIFT, and moderator George Reis from the Bond Market Association, the panel spoke to a variety of topics, including what new service offerings are available to help asset managers and custodians automate their middle and back office processing.

Throughout the sessions, various speakers noted how the Financial products Markup Language (FpML) is being used to enhance STP. A common theme among the multiple solutions for processing escalating swap volumes, FpML is a freely licensed business information exchange standard for electronic dealing and processing of privately negotiated derivatives and structured products.

According to Goswell, FpML has undergone a thorough review to determine its suitability to communicate swap trades between investment managers and custodians. The September Conference, with its emphasis on the proliferation of the alternative investment market, is the appropriate forum, says Goswell, to announce that FpML has indeed proven its viability.

ISITC's endorsement of the standard follows a two-year process that began with a partnership with the Asset Managers Forum's (AMF) Swaps Committee designed to define standards and best practices around the transmission of swaps transactions. After working together to identify the business data elements required by custodian/administrators to set up swap trades on their systems, the ISITC/AMF Swaps Joint Working Group then collaborated with the International Swaps and Derivatives Association (ISDA) to perform a full review of the FpML standard.

"The Asset Managers Forum's swaps initiative was developed to improve the processing environment of the OTC derivatives market," said Jason Jesner, Chairman of the Asset Managers Forum. "FpML was identified in the AMF's Swaps Best Practices White Paper as the protocol best suited to support automated OTC derivative processes."

Aside from its legitimacy as the de-facto messaging standard for OTC derivatives, Goswell says that this unique collaborative initiative has exposed whole new constituencies of financial institutions to FpML.

"The AMF recognized the potential for FpML to evolve into an industry-wide standard supporting the complete lifecycle of a position. The collaborative effort has achieved unparalleled results in realizing this goal," said Jesner.

In looking ahead, Goswell sees this effort as "groundwork" for future collaborations, not only in the OTC derivatives area, but in other key arenas as well. "Today's landscape is dotted with so many standards organizations with mutual goals and objectives. By joining forces, we can exploit opportunities to explore and implement measures that advance the entire financial services industry."