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BOSTON--(BUSINESS WIRE)-- State Street Corporation (NYSE: STT), the world's leading provider of financial services to institutional investors, today released its sixth in a series of Vision Reports, this one focused on derivatives servicing. State Street's Vision Report Series is intended to advance the understanding of key themes and trends within the financial services industry.

"It is crucial that the sell-side community, the financial services industry and regulators work together to develop new approaches to processing and servicing these complex transactions," said Jay Hooley, president and chief operating officer of State Street. "Our report frames the issues that are key to success, and encourages discussion about the most effective ways to address standardization and the adoption of industry best practices."

This latest Vision paper contends that the volume of OTC trades may prove a challenge for legacy technology systems. The technology platforms used to process these trades were originally designed to process traditional equity and fixed-rate transactions, but are now handling non-traditonal trades as well.

"Growth in the derivatives space and the customization of many products, raises questions about risk management and post-trade administrative support for these transactions. The challenge lies in capturing and recording all of the relevant features and terms contained in a transaction," said Neil Wright, senior vice president and product manager for derivatives servicing at State Street. "With increasing volumes and complexity, the range of procedures to confirm, process and otherwise manage the trade life-cycle of OTC derivatives needs to be automated. In addition, providers will need to keep pace with the increasingly sophisticated analytics needed for derivatives trades."

In relation to the servicing and administration of derivative trades, State Street's report says that greater consistency of information, a more streamlined flow of reporting, rigorous statistical analysis, independent pricing and risk modelling, and superior expertise and insight are needed to work effectively with the data. All of these features require a significant investment in infrastructure, technology and human capital.

Given the key role of third-party custodians and asset servicers in supporting the derivatives market, State Street's report highlights four best practices as benchmarks for post-trade activity. These practices are: reliability, flexibility, transparency and trained expertise. All four, taken together, are important for meeting the challenges this market faces and for maximizing the strengths that derivatives, when properly used and managed, can offer.

The latest report reflects State Street's deep experience servicing derivatives. In August of last year, State Street announced the launch of its industry-leading over-the-counter (OTC) derivatives servicing platform, the OTC Hub, which is currently in production with PIMCO, a leading global asset manager and long-time State Street customer.

State Street has published Vision Reports on topics including the Asian bond markets, hedge fund servicing, the insurance industry, global pensions and sovereign wealth funds. To obtain a copy of this Vision Report on derivatives or for more information, members of the press can contact publicrelations@statestreet.com. All other requests can be directed to vision@statestreet.com.

State Street Corporation (NYSE: STT) is the world's leading provider of financial services to institutional investors, including investment servicing, investment management and investment research and trading. With $12 trillion in assets under custody and $1.4 trillion in assets under management at December 31, 2008, State Street operates in 27 countries and more than 100 geographic markets worldwide. For more information, visit State Street's web site at www.statestreet.com.

    Source: State Street Corporation