FEATURE
coupled with the fact that the industry is looking closely to reduce risk and cost across all products in post- trade processes and open up new opportunities. Nick Solinger, chief marketing officer at Traiana, says: “Te BIS figures for 2004-2010 show phenomenal growth in FX and the majority of this growth came from FX prime brokerage, the client trading activity in FX, as opposed to the interbank market. Tis is clear evidence that lowering the economic cost of a trade in FX has enabled the market to effectively double in size.”
Managing risk Jim Dennelly “I think as a result of the regulatory changes a lot
of firms are taking this opportunity to re-architecture the back office instead of simply bolting an central clearing solution on to the existing back office.”
a result of the regulatory changes a lot of firms are taking this opportunity to re-architecture the back office instead of simply bolting an central clearing solution on to the existing back office.”
Dennelly adds that the addition of clearing houses and trade repositories has meant that the need for a new layer of real-time links has been added to the need to improve the end of day processing in the back office. He says: “Te sequence workflow in the back office will change to deliver the trade to the CCP and back to the server and onwards to the trade repositories.”
Te move towards real-time processing in the FX back office is an important hurdle, not least because FX transactions tend to come in bulk, demanding scalable systems that can process tickets at speed. “Right now the back office is preventing the front office from entering into certain agreements with clients, especially the algorithmic traders, as the back office cannot keep up. Tis is going to have to change, and the timescale is that it will happen sooner than later,” Dennelly adds, citing one client that brought forward a future strategic initiative to having it delivered in three months’ time.
Although the bulk of FX will not change there are aspects of the FX market that will change greatly. Tis is
48 | april 2012 e-FOREX
Keeping up with this growth requires new approaches for managing risk. Solinger says that for every year a bank builds capacity the market is realizing more growth in more trading. However, due to the growth of FX prime brokerage, Solinger believes the FX market is better prepared for incoming regulation than other asset classes. “Te tri-party model of FX prime brokerage is very similar to the clearing model that has to be put in place for CCPs. From the beginning, Harmony has been built to handle multi-party relationships and manage credit across electronic trading venues – all of which are features of the incoming regulations and the increasing move towards electronic trading. Te FX market has already addressed these challenges so will have smoother migration into this new regulatory environment.”
Tat said, he adds that there will be many new market participants entering the prime brokerage and client clearing arena as a direct result of the new regulations. Regional banks and asset managers that did not use a clearer or prime broker are likely to enter this world, which will further accelerate growth in volumes and the demand for clearing as a service.
Going forward, FX clients will have both cleared and non-cleared positions and the post-trade challenge is of connecting to multiple CCPs -- at least four CCPs have announced an intent to clear NDFs. Additionally, connectivity will be needed to numerous SEFs that will enable electronic trading of NDFs and, in the future, options. He says: “It will drive changes to the post-trade process requiring new connections and workflows to be put into place. Te approach we have taken with Harmony lends itself well to this as we developed one solution to the benefit of our entire community.”
Traiana has invested heavily into a CCP connectivity solution, CCP Connect, which handles everything for a clearing firm and their clients in terms of the workflow, allocations, processing, connectivity to
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