http://www.financialnews-us.com/?page=ushome&contentid=2448586302 Back offices buckle as trading surges Luke Jeffs 23 Aug 2007 The back-office systems of the worldâs largest investment banks are at breaking point from escalating trading volumes. Heavy trading volumes, particularly in credit derivatives and credit default swaps, have exposed weaknesses in the systems used by some investment banks for clearing these complex products, leading to backlogs of trades awaiting confirmation. Trading volumes on Friday, August 10 were so high that at least two top investment banksâ credit derivatives teams had to work over the weekend to clear confirmations. One banker said it was lucky the spike happened on a Friday, giving his team two days to catch up, or they would not have been able to open for business on Monday. A European bank said August 10 was its busiest trading day to date, when it traded 20% more in volume than it thought its systems could cope with. A big US bank is understood to have fallen one week behind with its confirmations. The problems come two years after the US Federal Reserve and UKâs Financial Services Authority called together 14 top dealers, demanding immediate action to address the growing backlog of credit default swaps. The Fed and FSA ordered the banks to reduce the backlog by 70% within a year, a target exceeded in the case of CDSs, where the banks cut it by 85%. One provider of derivatives technology said: âElectronic confirmation rates are higher than they used to be but what the banks arenât saying is how much manual work goes on behind the scenes getting the trades ready for matching.â He added: âElectronic confirmation rates may be 80% to 90% but how long after trade execution is that happening? If itâs a week or more, the risk is great, whether the trade is being confirmed electronically or otherwise.â Most CDS trades are executed over the phone between dealers and their brokers, meaning trade data has to be manually keyed into banksâ internal systems, leading to errors. One banker estimated that 20% of electronic confirmations fail because the trade data has not been entered correctly. The problem is compounded by the dealing room culture, which regards data entry and operational efficiency as a back-office problem, he said.