Thomson Reuters Matching Delivers New Risk Controls to Prime Broker Banks

One of the leading providers of direct market access, Thomson Reuters, has announced that it will be launching a new set of trading controls and net credit calculation for its Thomson Reuters Matching platform. The new trading controls are designed to provide prime brokers with more tools to manage their operational risks and set more effective credit lines to meet theirs and their customers’ needs.

The main array of new functionality provides an increased amount of safeguards for banks and their clients. The Maximum Order Size functionality protects prime brokers against large trades made in error – not an infrequent occurrence and the primary reason for the notoriously famous “flash crash” in 2010, when a mutual fund placed an order to sell 75,000 contracts of E-mini S&P 500 Futures.

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Additionally, a new Maximum Open Orders functionality, is aiming to limit the number of pending orders (hence the maximum exposure) of a client. In case of rapid price movements several of these orders can be triggered in the matter of seconds and dramatically reduce the credit eligibility of a client which has been deemed creditworthy before all of his orders have been executed.

Similar system wide controls for retail brokerages designed to protect them against risks associated with the much higher amounts of leverage used on the retail level, have been in place for some time. However even some of the leading trading platforms in retail FX, aren’t prone to vulnerabilities.

Additional controls are provided to the prime broker to configure which currencies a counterparty can trade with the bank. Prime broker banks will now also have an enhanced programmatic kill switch to terminate trading of any of their clients.

The new additions will enable prime broker banks to set and gauge credit against their trading counterparties, and prime brokers against their end clients, minimizing risks and creating greater efficiencies for the optimal use of credit on the Thomson Reuters Matching platform.

The new net credit functionality of Thomson Reuters Matching enables banks to set effective credit limits for their clients and counterparties that reduce risk and support current trading styles and requirements. Currently, banks can set only gross credit limits that does not represent the true credit risk.

Thomson Reuters’ Global Head of FX, Phil Weisberg, explained in a company announcement, “With net credit, banks can benefit right away from more efficient credit usage and draw down. These changes allow them to continue to trade with confidence at a time when firms and the markets where they operate are focusing on operational risk and controls. That is good news for banks and for their end clients.”

According to the announcement, the new features have been beta-tested with a small number of prime broker banks throughout August and September. The above-mentioned features are available to all prime broker banks and will soon be available to all Thomson Reuters Matching clients.