CDS Processing Cost to Peak in '06

Credit derivative market participants have been burdened by increased operational costs in processing credit default swaps (CDSs) as volumes have skyrocketed in recent years. However, despite the high volumes, which are expected to continue to swell, processing costs for CDSs are expected to peak in 2006 at approximately $700 million (see figure 1), according to research from Boston-based Aite Group.

The increased head count that middle and back offices have had to take on to reduce the backlog of trades was the major spend, says Aite, which believes that increased investment in technology infrastructure and ROI from technology investments will reduce the trade capture, affirmation, confirmation, matching and settlement costs for CDSs over the next two years (see figure 2). <<<