Managing Derivatives Contracts: A Guide to Derivatives Market Structure, Contract Life Cycle, Operations, and Systems

Managing Derivatives Contracts is a comprehensive and practical treatment of the end-to-end management of the derivatives contract operations, systems, and platforms that support the trading and business of derivative products. This book focuses on the processes and systems in the derivatives contract life cycle that underlie and implement the activities of derivatives trading, pricing, and risk management.

Khader Shaik, a Wall Street derivatives platform implementation expert, lays out all the fundamentals needed to understand, conduct, and manage derivatives operations. In particular, he provides both introductory and in-depth treatment of the following topics: derivative product classes; the market structure, mechanics, and players of derivatives markets; types of derivative contracts and life cycle management; derivatives technology platforms, software systems, and protocols; derivatives contracts management; and the new regulatory landscape as shaped by reforms such as Dodd-Frank Title VII and EMIR. Managing Derivatives Contracts focuses on the operational processes and market environment of the derivatives life cycle; it does not address the mathematics or finance of derivatives trading, which are abundantly treated in the standard literature.

Managing Derivatives Contracts is divided into four parts. The first part provides a structural overview of the derivatives markets and product classes. The second part examines the roles of derivatives market players, the organization of buy-side and sell-side firms, critical data elements, and the Dodd-Frank reforms. Within the framework of total market flow and straight-through processing as constrained by regulatory compliance, the core of the book details the contract life cycle from origination to expiration for each of the major derivatives product classes, including listed futures and options, cleared and bilateral OTC swaps, and credit derivatives. The final part of the book explores the underlying information technology platform, software systems, and protocols that drive the end-to-end business of derivatives. In particular, it supplies actionable guidelines on how to build a platform using vendor products, in-house development, or a hybrid approach.

What you’ll learn

• various execution models in the derivatives market
• STP contract workflow within the firm and across external entities
• market structure involving dealers, inter-dealer brokers, buy-side firms, servicing firms, regulatory bodies, and other third-party administrators
• notable species of exotic derivatives as well as all the major derivatives product classes
• implementation and integration of vendor and in-house platforms
• FpML, FIX, and SWIFT protocols and standards
• operational aspects of post-reform regulatory compliance

Who this book is for

Managing the Derivatives Life Cycle is suitable for personnel on all teams directly or indirectly engaged in derivatives trading, especially those personnel involved in derivatives operations and the underlying systems, who typically outnumber the traders and quants in a firm by an order of magnitude. Its primary readerships are newcomers to the field, middle-office teams of derivatives operations professionals, and technology personnel (project managers, business analysts, developers, and testers). Its secondary readerships include front-office teams (traders), back-office teams (payment processing), mid-level management, and auditors and compliance teams.

About the Author

Khader Shaik is a senior consultant in the derivatives systems group of a large buy-side firm in New York, building derivatives collateral management system and enhancing systems to support compliance with Dodd-Frank regulations. He has more than 15 years of experience building systems for managing securities and derivatives life cycle, order management, trading, and risk for investment banks and buy-side firms including Citigroup, JPMorgan Chase, Merrill Lynch, Salomon SmithBarney, Bank of Tokyo-Mitsubishi UFJ, and AEGON. He developed commercial software products for financial startups and cofounded a consulting firm specilizingin in derivatives technology solutions and training services. Shaik holds a bachelor's degree in computer science and engineering from Bangalore University and is certified in quantitative finance (CQF) from Fitch Learning.