Hedge funds said the delays in documentation and settlement are leading to unexecuted trades, difficulty in valuing assets in a timely manner and additional risk.
In New York, daily trading volumes for an index comprising credit default swaps on 125 investment grade North American companies reached some $221bn last week, while similar products in Europe attracted notional volumes of €200bn ($272bn), according to a straw-poll of dealer banks. Credit default swaps allow investors to take a view on the likelihood of a company defaulting on its debt.
Previous pile-ups have led to regulatory crackdowns: in 2003, the Fed warned investment banks about both the slowness of their settlement confirmation and the accuracy of their data. In response, banks cut the number of trades outstanding for more than 30 days by 80 per cent in the past two years and invested in electronic trade processing technology to reduce errors.
Now more than 90 per cent of trades are confirmed electronically. Large companies send out more than 70 per cent of confirmations within a day of the trade being agreed, according to data from the International Swaps and Derivatives Association.
The backlog of unconfirmed credit derivatives trades at large firms had fallen to the equivalent of 5.5 days of business, down from 16 days a year ago and 24 the year before, ISDA said.
Nonetheless, back office staff have been stretched to capacity this month and some banks have been tested more than others. Data seen by the FT suggest that Credit Suisse, Goldman Sachs, Deutsche Bank and Merrill Lynch are among those to have seen delays. But Deutsche said while there had been “minor delays given the volumes,” they were “well within the tolerances” it had established.
Citigroup said it had not received any complaints from clients, Goldman Sachs said it was not aware of any delays, and Credit Suisse and Merrill Lynch declined to comment.