NEW YORK (TheStreet) --As banks and money managers gear up to comply with new derivatives rules stemming from Dodd-Frank and Basel 3, technology vendors are elbowing each other out of the way to capture a share of the new business.
"It's going to be a bonanza for these IT firms," says Sean Owens, director of fixed income at Woodbine Associates and author of a new report assessing nine different vendors in the new space.
The largest of the vendors is Sungard, owned by Silver Lake, Bain Capital Partners, The Blackstone Group (BX), Goldman Sachs (GS), Kohlberg Kravis Roberts & Co. (KKR), Providence Equity Partners and Texas Pacific Group.
Algorhythmics, a division of IBM (IBM), has a bigger foothold in the critical business of collateral management, however. As a result of new regulations, companies that trade derivatives will be required to post collateral to back their positions, which they must increase each day if their trade begins losing money. Initial estimates of the amount of new collateral that will be required to back derivatives trading under the new rules range from $800 billion to $2 trillion.While the need to adjust collateral daily is what will spur companies to upgrade their systems, Owens believes many will use the opportunity to "adopt a more comprehensive integration of risk, liquidity and collateral management," according to his report. In addition to the IT vendors, custody banks including Northern Trust (NTRS),State Street Corp. (BX) , BNY Mellon (BK)and JPMorgan Chase (JPM) will gain business from firms that want to outsource collateral management and related capabilities. Given the relative size of these institutions, however, Owens doesn't expect the added collateral management business will have a noticeable effect on earnings. Rather, it looks like collateral management will be relegated to sleepy backwater status at most firms--at least until something blows up. -- Written by Dan Freed in New York. Follow @dan_freed
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV