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Capital Markets

Traiana signs six banks for client FX clearing

Streamlines derivatives processing; MarkitServ launches competing product

Traiana, the post-trade services group for buy-side firms, has signed agreements with six of the world’s largest foreign-exchange clearers to use its comprehensive client clearing solution, Harmony CCP Connect, the firm says.

The product is designed to reduce clients’ costs of complying with new FX derivatives regulations.

Bank of America Merrill Lynch, Citi, Deutsche Bank, JPMorgan, Morgan Stanley and UBS will use CCP Connect to manage workflow required to clear over-the-counter FX derivatives, enabling them to manage the clearing process with their clients, counterparties and clearing houses, Traiana says.

Using Harmony CCP Connect is seen as the most effective and efficient way for banks to allow their clients to comply with new regulations that require mandatory clearing of OTC FX derivatives, under new rules being implemented across the globe for the derivatives markets.

NDFs

In the first instance, this will involve the clearing of non-deliverable forwards.

"With many new rules and regulations, FX post-trade workflows will likely evolve for years," says Andres Choussy, global head of FX clearing at JPMorgan. "Working together with Traiana and other leading prime brokers will allow us to quickly adapt as we comply with the Dodd-Frank Act and the upcoming regulations in Europe and Asia."

Traiana, which launched the CCP Connect product on its Harmony network in March last year, provides services to support trade affirmation and workflow for clearing, including allocations, cancellation of trades and end-of-day processing.

The CCP Connect platform is being promoted as a service for market participants that enables reconciliation between the new regulations in the US, the slightly different ones in Europe, and yet others in Asia. Additionally, the platform will help the banks manage the increasing array of clearing houses and trade repositories entering the market, not to mention the different requirements of different clients.

Nick Solinger, chief marketing officer at Traiana

Nick Solinger, chief marketing officer at Traiana

"A centralized service is the best way to address the regulations and to avoid the massive increases in costs," says Nick Solinger, chief marketing officer at Traiana, in an interview with EuromoneyFXNews. In January, Traiana became the first firm to gain certification from the CME to clear OTC FX derivatives. Other clearing houses are set to release their own set of conformance standards for client FX clearing. Such standards will include minimum capital requirements for clearing members, margin requirements and required clearing member procedures in dealing with individual clients.

CCP Connect will also provide a gateway to other leading FX infrastructure operators, ensuring clients, from hedge funds to broker dealers to real-money investors, can use their preferred trading, allocation and confirmation venues with complete interoperability.

"We mapped out the workflows and requirements of all the different client segments. We also reached out to the other middle-ware and post-trade vendors and venues to establish connectivity, minimizing the changes required by the client community," says Solinger.

"It’s not just Traiana connecting to the CCPs. Traiana’s model has always been one of providing a layer of interoperability even with firms that might be viewed as competitors in some respects."

Earlier this month, MarkitServ, the dominant trade processing vendor for the OTC derivatives market, announced the introduction of its gateway for FX participants to route trades to clearing houses. The service, which MarkitServ said had been developed in close consultation with leading market participants, has been either certified or has established links with the CME, LCH.Clearnet and the Singapore Exchange.

However, it isn’t clear at this stage if Traiana and MarkitServ will be working together on FX clearing. MarkitServ has historically been involved in post-trade processing of rates and credit. Last year it acquired Logicscope, an FX software vendor, which through its TradeSTP trade processing technology, was connected to more than 60 liquidity providers and 400 financial institutions. It is now emerging as the first real competitor to Traiana in FX.

Top six

The six banks that signed up to use CCP Connect represent the vast majority of the FX prime brokerage or clearing market, says Solinger, and will be using Harmony as a universal adapter into CCPs and other post-trade venues.

It is not yet clear if the banks will look to clear client trades that are both mandated for clearing and not mandated under the regulations. Some banks signed up to CCP Connect have told EuromoneyFXNews that a number of their clients have indicated they might wish to clear non-mandated trades.

However, even though Traiana and the FX clearers are technically ready to go, there are still questions about the cost structure and the overall economics of the FX clearing business model, which are aspects of OTC clearing that have nothing to do with the technical, legal or compliance dimensions of new requirements.

"They have more to do with costs surrounding the clearing houses, margin requirements and other such things," says Solinger. "For example, initially there may be separate guarantee fund and margin buckets for the OTC products, so it may be less efficient to clear the mandated products initially, and would discourage clearing of non-mandated products as well."

He adds that clearing houses are working with clearers to address these issues for their clients.

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