Today marks a development milestone in terms of the complex systems which are now required in order to process the clearing of OTC derivatives and ensure that they are in line with the equally complex regulatory conditions with which such activities now must comply.
Harmony CCP Delivers Trade To LCH.Clearnet
Pre and post-trade technology company Traiana has been engaged in the development of the Harmony CCP Connect system since last year, and today announced that the first interdealer non deliverable forward (NDF) trade has been delivered to LCH.Clearnet’s ForexClear service through the recently established link with the Harmony CCP Connect system.
The trade in question was a USD/KRW NDF with HSBC as one of the trading parties.
In September last year, Traiana brought on board a series of international banks which confirmed their respective intention to use the Harmony CCP Connect product, which is an enterprise system designed to provide end-to-end client clearing to institutional participants.
Its functionality encompasses CCP connectivity, trade routing, affirmation, matching, allocation, and reporting for centrally cleared OTC FX options and non-deliverable forwards (NDFs).
Final Structure In Place
In June this year, Traiana connected the system to LCH.Clearnet’s FX clearing service ForexClear for the purposes of NDF clearing, resulting in its final technical advancement before going live.
Market participants looking to clear foreign exchange trades under the new Dodd-Frank and EMIR regulations can leverage their existing foreign exchange prime broker connectivity together with Harmony CCP Connect’s matching and affirmation capabilities to get direct access to CCPs, thus ensuring conformity to worldwide rulings plus ensuring that the end user is able to execute trades in a relatively uninterrupted manner.
Subsquently, at the end of June, during a panel discussion involving other senior industry figures, ForexClear CEO Gavin Wells spoke to Forex Magnates in detail With regard to this matter, and on who is expected to report to whom under the new regulatory structure set out in the Dodd-Frank Act.
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Mr. Wells explained that “there are some changes to how we report. We report on our own information in the US and Europe. The deadline relating to the ability to report trades was January this year for the US, and will be next January for Europe. We have always reported trades.”
“For us, the additional part surrounding transparency of Central Counterparty Clearing Houses (CCPs) activites is still a little unclear. We are still working to understand what the regulators want us to make transparent, and how we will be required report such information to them” stated Mr. Wells. Mr. Wells completed the picture by focusing on the hardware requirement: “Middleware infrastructure has evolved and changed too early. There is no trade confirmation service for FX at the moment, and there is a need for firms such as Traiana to match and report the trades in order to build the infrastructure correctly.”
HSBC Highlights Ambiguity
During the same panel discussion in London, Jaqueline Liau, FX Prime & Global Head of Product and Service at HSBC commenced explained to Forex Magnates that from her perspective there remains a degree of ambiguity in the marketplace as to which parties are expected to conduct the reporting: “There is plenty of confusion in the market from both buy and sell-side, and it is unclear as to who reports what trade information, and who has to carry out the reporting” said Ms. Liau.
Speaking about the initial stages of the nature of the ruling and the reaction to it, Ms. Liau said “Plenty of people were suspicious about what data was reported.”
Clearly, this is a factor which the multinational financial institution has borne in mind and subsequently is proceding with caution in being a pioneer of delivering trades via the Traiana and LCH.Clearnet. A potentially prudent means of operating given that this is a bank with a wealth of experience.
One Month On, Successful Trade Completed
Today, one month on, Ms. Liau made a statement relating to today’s successful completion of a trade via this new processing system: “We are very pleased to have participated in the execution of the first interbank trade to be cleared through the new link with LCH.Clearnet and Traiana. This direct connectivity gives HSBC, and the industry, an efficient and flexible way to quickly adapt to changing regulations.”
Mr. Wells added that “the swift take up of our link with Traiana is testament to the strong demand from the market for solutions to regulatory requirements.”
Traiana’s CEO Andrew Coyne concluded today’s corporate statements on the delivery of a successful trade to the effect that the company is “pleased to announce that trades are being successfully matched on CCP Connect and delivered to LCH.Clearnet for clearing.”
“Traiana built direct connectivity to LCH.Clearnet’s ForexClear at the specific request of our client base, so we’re very excited at how quickly the service has been adopted.”