Quantile and LCH ForexClear deliver FX Smart Clearing service
22 November 2023 UK
Image: mehaniq41/stock.adobe.com
Quantile and LCH ForexClear, both LSEG post-trade businesses, have launched the market鈥檚 first FX Smart Clearing service.
The service, which went live on 15 November, enables participants to selectively clear FX Forwards via LCH ForexClear in an effort to reduce capital requirements and counterparty risk.
The FX Smart Clearing service selects existing uncleared trades to move to LCH ForexClear, and optimises portfolios with new rebalancing trades to reduce counterparty risk and the financial resources a participant must hold.
The platform enables participants to control their risk and resource changes, as well as their preferred currency pairs and trading partners. Portfolios can also be potentially compressed to significantly reduce trade count and notional.
FX Smart Clearing was developed in response to customer demand for solutions which simultaneously manage counterparty risk, initial margin (IM) and capital. The introduction of SA-CCR has increased capital requirements for FX. LSEG says this creates a new incentive to clear, assuming the differences in cleared and uncleared IM are appropriately managed.
By moving FX Forwards into LCH ForexClear, participants gain access to multilateral netting, lower counterparty risk weights and settled to market (STM) treatment 鈥� all of which reduce capital requirements and counterparty risk.
Quantile鈥檚 capabilities then ensure the risk reduction is achieved within the relevant IM and risk constraints.
Prior to the recent go-live, Quantile and LCH ForexClear have delivered several Proof of Concept (PoC) exercises. Some 19 participating banks achieved an average reduction in capital requirements of 51 per cent, without increasing IM significantly.
Quantile and LCH ForexClear affirm there is scope to increase capital reductions to more than 70 per cent as the clearing network and eligible products grow.
Quantile and LCH ForexClear will be offering regular FX Smart Clearing runs from early 2024 for FX Forwards, with other cleared products to follow.
Esben Urbak, head of product at Quantile, says: 鈥淲e are pleased to have pioneered FX Smart Clearing with LCH ForexClear, and would like to thank our clients for their participation and support in the first live run.
鈥淏y using Quantile鈥檚 optimisation to intelligently clear risk, we can now drive new levels of capital reduction and enable participants to access the benefits of clearing. The launch cements Quantile鈥檚 commitment to help make FX portfolios easier, and cheaper, to maintain.鈥�
Andrew Batchelor, chief operating officer and head of product at LCH ForexClear, comments: 鈥淟CH ForexClear is a very efficient place to hold risk, and by leveraging Quantile鈥檚 optimisation service, we can now significantly reduce capital and funding requirements. We look forward to welcoming more participants to the live service so they can benefit from the strong network, improved capital efficiency and further optimisation benefits from facing a central counterparty.鈥�
The service, which went live on 15 November, enables participants to selectively clear FX Forwards via LCH ForexClear in an effort to reduce capital requirements and counterparty risk.
The FX Smart Clearing service selects existing uncleared trades to move to LCH ForexClear, and optimises portfolios with new rebalancing trades to reduce counterparty risk and the financial resources a participant must hold.
The platform enables participants to control their risk and resource changes, as well as their preferred currency pairs and trading partners. Portfolios can also be potentially compressed to significantly reduce trade count and notional.
FX Smart Clearing was developed in response to customer demand for solutions which simultaneously manage counterparty risk, initial margin (IM) and capital. The introduction of SA-CCR has increased capital requirements for FX. LSEG says this creates a new incentive to clear, assuming the differences in cleared and uncleared IM are appropriately managed.
By moving FX Forwards into LCH ForexClear, participants gain access to multilateral netting, lower counterparty risk weights and settled to market (STM) treatment 鈥� all of which reduce capital requirements and counterparty risk.
Quantile鈥檚 capabilities then ensure the risk reduction is achieved within the relevant IM and risk constraints.
Prior to the recent go-live, Quantile and LCH ForexClear have delivered several Proof of Concept (PoC) exercises. Some 19 participating banks achieved an average reduction in capital requirements of 51 per cent, without increasing IM significantly.
Quantile and LCH ForexClear affirm there is scope to increase capital reductions to more than 70 per cent as the clearing network and eligible products grow.
Quantile and LCH ForexClear will be offering regular FX Smart Clearing runs from early 2024 for FX Forwards, with other cleared products to follow.
Esben Urbak, head of product at Quantile, says: 鈥淲e are pleased to have pioneered FX Smart Clearing with LCH ForexClear, and would like to thank our clients for their participation and support in the first live run.
鈥淏y using Quantile鈥檚 optimisation to intelligently clear risk, we can now drive new levels of capital reduction and enable participants to access the benefits of clearing. The launch cements Quantile鈥檚 commitment to help make FX portfolios easier, and cheaper, to maintain.鈥�
Andrew Batchelor, chief operating officer and head of product at LCH ForexClear, comments: 鈥淟CH ForexClear is a very efficient place to hold risk, and by leveraging Quantile鈥檚 optimisation service, we can now significantly reduce capital and funding requirements. We look forward to welcoming more participants to the live service so they can benefit from the strong network, improved capital efficiency and further optimisation benefits from facing a central counterparty.鈥�
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