Pre-Trade Clearing Platforms Gain Traction

Terry Flanagan

Platforms that provide mandatory pre-trade credit checks are gaining traction as mandatory clearing of OTC transactions under the Dodd-Frank Act and Emir kick in.

Traiana, a provider of pre-trade risk and post-trade processing services, said that its pre-trade clearing certainty initiative continues to gain momentum and has received the support of futures commissions merchants (FCMs) and trading venues.

Barclays, BofA Merrill Lynch, Citi, Goldman Sachs, J.P. Morgan and leading buyside institutions have put their support behind the central risk management infrastructure to be the first clearing firms to use Traiana’s CreditLink service to manage swap clearing limits, with deployments underway to meet regulatory deadlines.

“Traiana’s cross-product limit management service will allow us to meet our clients’ needs by facilitating the management of credit lines across multiple SEFs. This will allow us to offer customers a low latency pre-trade indication and is an important step toward the ultimate goal of a legally binding credit commitment from both the FCM and the clearing house,” said Andres Choussy, co-head of OTC clearing at J.P. Morgan.

MarketSERV in June announced that major FCMs, including BofA Merrill Lynch, Citi and Goldman Sachs and several execution venues were using its Credit Centre platform, and since then more have joined.

“Several things distinguish Credit Centre,” said Jeffrey Maron, managing director at MarkitSERV. “One is MarkitSERV’s long track record in OTC derivatives: we process 99% of all CDS trades, 86% of all interest rate swaps, virtually all cleared FX trades, and the majority of electronically confirmable equities derivatives.

MarkitSERV is the only middleware connected to more than 12 CCPs worldwide and the only middleware to support credit, rates, equity and FX derivatives, Maron added.

Credit Centre is designed to function in support of any type of electronic execution: request for quote, request for stream (of prices), and central limit order book.

“Credit Centre is purpose built using new technology,” said Maron. “Cinnober is a primary technology provider and the battle-tested TRADExpress software that powers exchanges and clearinghouses worldwide is also core to Credit Centre. Our ultra-low latency system is designed to be faster than 5 milliseconds in latency and is able to handle more than 150,000 messages per second.”

Credit Centre is housed in Equinix’s datacenters in New York and Chicago.

The Traiana service is in live production operation and is connected to and supported by twelve potential swap execution facilities (SEFs) and designated contract markets (DCMs), including GFI Group, iSwap, Javelin, MarketAxess, TeraExchange and trueEX, and has been built in consultation with major clearinghouses, including CME Group, IntercontinentalExchange and LCH.Clearnet Group.

CreditLink supports request-for-quote and request-for-streaming trading using a centralized limit check (Ping model) and also gives FCMs and their clients the ability to distribute limits directly to specific trading venues or CCPs to minimize latency (Push model), which is important for buyside firms, executing brokers, interdealer brokers, market makers and exchanges using central limit order books.

“Pre-trade clearing checks are an important part of ensuring a fully automated and seamless process for the centralized clearing of OTC derivatives,” said Mike Yarian, global head of agency derivative services at Barclays. “This initiative provides a pre-trade, low-latency solution to check the certainty of clearing across multiple venues, in compliance with the requirements of Dodd-Frank legislation.”

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