Research group says error rates on novations of CDS trades are high

TABB Group, a research and advisory firm, estimates that the average notional value at risk of trades novated monthly will exceed $45.2 trillion by 2010, an 88% compound average growth rate from 2005. The firm says 90% of all CDS trades are confirmed electronically, but same-day matching of new trades and novations is rare and error rates are unacceptably high. The group forecasts that nearly $170 million will be spent in 2010 by major sell-side broker-dealers to automate the affirmation process and mitigate the potential risk resulting from trade exceptions. They further note that despite current available technology, details of most CDS trades are still not affirmed between counterparties on trade date. They add that the delay is in agreeing that each party recorded the same basic trade details such as the reference entity or notional amount.
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