Regulatory cost concerns drive systems tie-up between ICE Link and Traiana

By:
Russell J. Dinnage
Published on:

An agreement finalized between ICE Link and Traiana could ease long-term regulatory compliance costs for hundreds of buy-side firms.

The buy-side companies are worried that the risk mitigation benefits gleaned from putting on even a small number of FX non-deliverable forwards (NDF) trades will eventually become outweighed by the costs associated with clearing those trades through a clearing house.

As a result, exchange operator IntercontinentalExchange (ICE) and Traiana, the Icap-owned post-trade services provider for the FX market, agreed on Monday to allow the 550 buy-side clients that usually use the ICE Link platform to process over-the-counter (OTC) credit-default swaps trades to also use the electronic facility to process NDF trades.

Traiana spokesman Nick Solinger says buy-side firms that use Traiana to process OTC NDF trades to a clearing house can now perform the same function through ICE Link.

"The cost of compliance with the new regulations coming in is a huge concern for buy-side clients dealing in NDFs even though that part of the FX market covered by the new regulations is a small market compared to the markets for interest-rate swaps, credit-default swaps and other products that must be centrally cleared," says Solinger.

Solinger points out that most of the companies using Traiana’s Harmony CCP Connect service to centrally clear FX NDFs are large market players like hedge funds that typically have access to a prime broker and, as such, have access to lines of credit that make regulatory compliance costs less burdensome.

"But the clearing mandate in the regulations affects vastly more participants, and those market participants happen to be many of the firms that are on ICE Link," says Solinger.

Now, companies like small asset management firms that use ICE Link to send OTC credit-default swaps trades to a clearing house can streamline their FX NDF workflows through the ICE Link platform, says Solinger.

"Traiana has brought its packaged solution built for FX prime brokers and integrated it with ICE Link to offer their unique client base of asset managers, pension funds and other diverse clients the same set of services that FX prime brokerage clients can access directly through Traiana," says Solinger.