In other FinTech news, the CFTC wants Phase 5 clarity, Traiana bolsters its hub, and Vela & Enyx partner.
Murex & LCH Also Working on Clearing Issues
Murex, a specialist vendor for trading, risk management and processing solutions has launched a transition offering and a task force to address “the challenges of the 2021 discontinuation and benchmark reforms” that will end the usage of the London Interbank Offered Rate, or LIBOR.
Over the years, LIBOR has been in the spotlight for rate-fixing scandals that have caused fines and exposed the shortcomings of the benchmark. As a consequence, the industry is gradually replacing LIBOR with the Securitized Overnight Financing Rate (SOFR), created by the Alternative Reference Rate Committee (AARC).
The use of LIBOR quotations is slated to end by December 2021 and there are signs of movement in that direction such as clearinghouses in the U.S. and the U.K. starting to clear SOFR swaps. However, there are many steps that need to be clarified before the transition is complete.
To monitor LIBOR replacement updates, Murex’s task force will provide guidance to customers “as they assess how the changes will impact their business,” officials say.
The vendor is also collaborating with LCH, a London-based clearinghouse company, on a “project relating to the cleared rates derivatives market.”
Murex emphasizes that it is “already developing dedicated transition events in response to LCH’s requirements,” and is also “aiming to streamline the transition of OTC [over-the-counter] derivatives trades referencing LIBOR, starting with the seamless application of new fallback clauses to legacy positions upon a discontinuation event.”
Murex also notes that its “cross-asset LIBOR reform offering supports new indices, instruments, curves and emerging valuation practices. Covering front office through to risk management and accounting, it also includes LIBOR exposure dashboards and impact analysis tools.”
Murex tallies more than 50,000 daily users in 60 countries and more than 2,200 employees in 17 countries.
Giancarlo Pushes for Phase 5 Rules Clarity
J. Christopher Giancarlo, chairman of the CFTC, is urging a path to clarity for the “Phase Five” implementation requirements governing initial margin on uncleared swaps, slated to take effect by September 2020.
Giancarlo has outlined his intentions via a letter to Federal Reserve Board Vice Chairman Randal K. Quarles, according to the CFTC.
“As market participants prepare for Phase Five, many of the smaller entities are realizing that, while their notional amounts exceed $8 billion, their calculated margin amounts are less than $50 million,” Giancarlo says via his letter. “In other words, they will soon be required to incur the time and expense of preparing to exchange initial margin even though they will not be required to exchange margin.”
Giancarlo says that when considering the costs of regulation against
the benefits of mitigating systemic risk, “the current uncleared margin rules provide two forms of relief to small swap market participants: entities do not have to exchange initial margin unless the calculated amount exceeds $50 million, and entities with a notional amount of swaps less than $8 billion are out of scope of the rules and, consequently, do not have to establish custodial services, document margin relationships, or operationalize margin exchange.”
Citing the CFTC’s Office of Chief Economist (OCE) and its “concerns that many small market participants will be brought into scope in the Phase Five implementation, and based on OCE and CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) staff analysis,” Giancarlo has recommended the following:
- U.S. regulators clarify “that an entity need not make any preparations to exchange initial margin on uncleared swaps so long as its calculated margin amount is less than the current initial margin threshold of $50 million;”
- And global regulators further engage with the Basel Committee on Banking Supervision (BCBS) and International Organization of Securities Commissions (IOSCO) “to reflect in global principles its recent, similarly motivated statement.”
“These recommended actions will not reduce the actual amount of margin required from market participants,” Giancarlo says. “They would, however, significantly reduce the compliance burden of entities that would not, in any case, be required to post initial margin.”
Traiana Bolsters Credit Risk Hub
Traiana, an infrastructure service for trade life-cycle and risk-management processes, reports that foreign exchange prime brokers (FXPBs) can now “define trade information in more detail to increase credit risk controls and reduce the risks of credit over-allocation” in its credit risk hub.
The hub consists of two services — Designation Notice Manager, which “helps FXPBs establish, monitor, amend and terminate FX Tri-Party Agreements with buy-side clients if they default on a trade”; and CreditLink, “a calculation engine which provides FXPBs with end-to-end control of how much credit is extended to buy-side clients.”
Beginning this month, the hub will “enable FXPBs to define which eligible FX instruments, currency pairs and tenors buy-side managers can trade as part of Tri-Party Agreements, which in turn impacts the level of credit extended to them.”
Traiana is a part of the CME Group, which is headquartered in Chicago.
Vela & Enyx Form Strategic Partnership
Vela, a provider of trading and market access technology for multi-asset electronic trading, and Enyx, a developer and provider of ultra-low latency technologies and processes for the financial industry, report the advent of a partnership to provide Vela’s clients with access to Enyx’s FPGA-based technology (i.e., field-programmable-gate-array-based technology), initially focused on ultra-low-latency market data solutions.
The partnership intends to deliver a “best-of-breed hardware and software solution to clients that need market-leading latency and performance as well as global scale and coverage from their latency-sensitive trading applications.”
The companies jointly state that they will “work together to identify opportunities to bring the technology to market through Vela’s range of market data, execution, and automated trading products.”
Vela spotlights its “access to more than 250 venues” in the U.S., Europe, and Asia, from which it “provides global coverage across all major asset classes. Vela’s clients include “traders, market makers, brokers, banks, investment firms, exchanges, and other market participants. “
Enyx maintains offices in Paris, New York, Chicago and Hong Kong.