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Post-Trade Initiative of the Year

GlobalCollateral Ltd: Euroclear and Depository Trust and Clearing Corporation

Few problems plague the plumbing of the financial markets as much as the movement of collateral. Firms have even been warning for years of an impending ‘collateral crunch’, where the availability of high-quality, investment grade collateral will dry up in response to additional regulatory requirements. Euroclear and the Depository Trust and Clearing Corporation have developed a way to ease the movement of collateral across European and US borders through their GlobalCollateral joint venture as a result. The JV’s latest project is the Margin Settlement Messaging Service, which allows for technology-enabled processing of margin calls. The project has been adopted by prominent buyside firms, including State Street and Northern Trust, and aims to reduce the reliance on the manual processing of these messages, which can expose trading firms to operational risk and human error.

ISA Direct: Eurex

Direct membership of clearing houses isn’t something that the buyside has traditionally been particularly keen to explore. The costs associated with it – and the default risk that these firms have to carry as members of the default funds – make it unpalatable for some, and directly contradict the investment rules of others, in terms of mutualising risk. However, solutions are needed, particularly as banks withdraw from client clearing operations. Eurex, in response, is testing a service aimed at pension funds, investment funds and the like where some of this capital burden can be reduced by having clients directly post their collateral for derivatives trades. The project is in its early stages, and limited to interest rates and repos for its first phase, which launched in summer 2016, but it has reportedly received strong interest from regional banks, who cannot afford to become full clearing members but wish to benefit from the capital savings and risk management.

LCH Spider: LCH.Clearnet

In a world where clearing is increasingly favoured by regulators as a principal means to manage risk in financial markets, trading firms are increasingly looking to manage their collateral more effectively. Portfolio margining has been repeatedly presented as a way to do just that, which LCH.Clearnet has accomplished with the launch of its LCH Spider service in May 2016. Spider allows firms to identify where trades offset one another across listed and over-the-counter products, for example with short-term interest rates and OTC swaps, and thus reduce the amount of collateral that needs to be posted. Its major appeal lies in its ability to work across venues. Nasdaq’s NLX venue has been an early partner for the service with its eligible futures contracts, and LCH will introduce support for CurveGlobal, a new futures venue backed by the London Stock Exchange, among others.

TRADEcho: London Stock Exchange Group and Boat Services

Trade reporting has been a thorn in the side of financial firms for years, and new changes to how trades are reported under the review of the Markets in Financial Instruments Directive, entering into force in January 2018, will not make things easier. As such, the partnership between the London Stock Exchange and Boat Services will be a welcome balm for many. The venture, TRADEcho, combines the capabilities of both firms in areas such as trade reporting, quoting on systematic internalisers, reporting for on-exchange, off-book trades and risk management tools for clearing. The partnership will also benefit from Boat’s status as an Approved Publication Arrangement under Mifid II, which will allow it to publish trade reports on behalf of investment firms. The service is set to launch in the first quarter of 2017, a year ahead of Mifid II’s requirements.

TRADExpress RealTime Clearing: Cinnober

Significant efforts have been made in recent years to move risk management to a near-real-time process, but the challenges are enormous, not least of all in terms of the raw computing power needed to run Monte Carlo and what-if simulations on portfolios. Cinnober’s TRADExpress RealTime Clearing has been designed specifically for this purpose and for institutions whose core business is managing risk – clearing houses. The system provides an immediate and complete view of risk exposures across markets, enabling more efficient use of capital better operational processes across listed and OTC flows. First launched in 2009, it is in use at Brazilian exchange BM&F Bovespa, LME Clear and Johannesburg Stock Exchange. At the beginning of 2016, the Japan Exchange Group also chose the system to both replace its listed derivatives clearing system, and to supply a risk management system that will monitor risk across the entire Japanese market of equities, bonds, futures and options.