Symposium Charts Future of $88 Trillion OTC Derivatives Market; New E-Commerce Standard a Major Step Towards Electronic Trading

The Over the Counter (OTC) derivatives market has grown to more than $88 trillion of notional since the interest rate swaps market emerged in the 1980's, according to Neil Wright, Senior Vice President, The Chase Manhattan Bank. Speaking to 150 delegates at the first FpML (Financial products Markup Language) User Symposium last week, Mr. Wright said the derivatives industry clearly needs the new FpML e-commerce standard to support the emergence of electronic trading across these markets.

The symposium was sponsored by FpML.org, Inc., a consortium of leading banks, information and software vendors, and systems integrators.* It included case studies describing the use of FpML by organizations such as SunGard Trading and Risk Systems, Cygnifi Derivatives Services and Kronos Software. Also described was an FpML-based interface between a Morgan Stanley Dean Witter system and FinTrack Systems.

Philippe Khuong-Huu, Chairman of the FpML Board of Directors, said that some 30 financial, technology and consulting firms are at work to broaden the application of the standard into areas beyond interest rate swaps and forward rate agreements. "Fast time-to-market and broad product coverage are key priorities in responding to the needs of the OTC derivatives trading community. This is the message I am hearing here today." he said. "For example, the next FpML release, expected in early 2001, will accommodate interest rate caps and floors, interest rate swaptions, optional and mandatory early swap terminations, basis swaps and cancelable swaps." He said the consortium would be reviewing the scope of this and future releases based on the feedback received at the New York symposium and one held in London.

Mr. Khuong-Huu said FpML is attractive because it provides the derivatives industry with a unique opportunity to streamline the flow of information across all front-to-back-office processes, promising to dramatically reduce the estimated $1 billion annual cost of OTC trading in financial derivatives. "Importantly, it allows us to explore new ways of doing business and challenge existing outdated practices", he said.

Electronic trading is clearly on the upswing. While only 2% of the derivative end-user organizations polled in a recent survey use the Internet to negotiate or purchase OTC derivatives, 12% expect to do so within the next 12 months and 25% within 18 months. Of all respondents, 45% already use the Internet to transact financial services businesses of some kind.

FpML is a freely licensed XML-based standard. It is designed to support the electronic dealing and processing of financial derivatives between trading partners, including financial institutions and their client network. The standard received a 2000 Technological Development of the Year award from Risk Magazine.

Visit www.fpml.org for further information on FpML and the symposium

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