NEX Optimisation has implemented out a new settlement service for over-the-counter (OTC) FX, helping better facilitate and streamline bilateral settlement netting processes for market participants. The launch will mark one of the industry’s first instances of a fully automated Settlement Netting Service, initially targeting OTC FX as well as additional asset classes moving forward.
The new service will help address the lingering issue of settlement failure rates. While only estimated at nearly 3 percent, these do amount to nearly $1.5 billion on a daily basis. However, the deployment of an API to simultaneously communicate with clients’, banks’ and custodians’ systems will help mitigate and ideally reconcile this issue.
NEX Optimisation’s service will abandon the manual process in favor of automated netting between clients and their dealers – to date, manual methods have resulted in settlement fail rates and other unnecessary fragmentation that has had a disconnect with markets.
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In its first iteration, NEX’s Settlement Netting Service will target and automate the settlement netting of only OTC FX, though is also slated for an expansion into all asset classes in the near future. The service was developed utilizing Traiana’s technology infrastructure, yielding several new benefits for trading activities and settlement processing.
Push towards automation
This includes heightened efficiency via the reduction of lead time between netting and settlement as well as a lower operational and funding costs, settlement fail breaks and costly claims. This has been one of the largest areas of emphasis through its Settlement Netting Service, which had been working to improve in this area. The service will also help provide a standardized process for netting participants. In addition to reduced risk exposure, the automated service is also in full compliance with regulatory regimes and the new FX Global Code of Conduct.
Joanna Davies, Managing Director at Traiana, commented on the launch: “The Settlement Netting Service will allow traders to execute with any bank on any trading venue and enjoy optimised, efficient, automated and consistent post-trade processing from execution through settlement.”
“Settlement netting processes have traditionally been fragmented across organisations and asset classes, requiring extensive manual processing, which does not reflect the way in which the market is moving. By automating the entire netting process via a central hub, we’ve brought an essential tool to the market that will significantly reduce breaks and have a direct impact on costs for our clients,” she added.
The release of the Settlement Netting Service comes just one month after NEX introduced a new infrastructure for NEX Infinity, which improved testing for FX and cash equities on the distributed ledger. The initiative has since helped clients benefit from less complexity and more optimized resources across the transaction lifecycle.