The world’s largest swaps dealers and market infrastructure providers are working on a utility to cut down the number of disputes over the amount of margin used in swaps trading.
In a rare sign of co-operation 13 banks are backing a new hub that connects them to three of the industry’s main providers of post-trade services for swaps and derivatives.
The widespread push to link up each other’s systems and share information illustrates how tougher rules for markets is forcing greater co-operation in an industry historically sensitive about sharing swaps data.
Post financial crisis regulators have sought to clamp down on the amount of leverage in the system, which can accentuate losses, and mandated that banks post more margin to back their derivatives trades.
Tougher rules due to take effect in September 2016 will force dealers to post more margin, reducing the amount of credit exposure a counterparty faces.
That requirement is expected to force banks and their counterparties to post far more margin and collateral to back their trades during the day, putting pressure on a system that still extensively uses email, phone calls and faxes to settle disputes over amounts that are posted.
The venture replaces a failed industry initiative dubbed “Project Colin”. The new attempt will this time include TriOptima, a post-trade services company owned by ICAP, the interdealer broker. TriOptima runs the industry’s largest portfolio matching and reconciliation service and will link up with a collateral venture run jointly by Euroclear and Depository Trust and Clearing Corporation. The latter two, along with four more banks — BNP Paribas, Citi, Société Générale and UBS, will also become the project’s latest backers.
The hub will automate and centralise the way banks reconcile the amount of margin they should post, as well as creating an audit trail of exposures and commitments. It will be run and governed by AcadiaSoft, a US trading technology provider.
While most of the dealers have gone electronic, many of their customers such as asset managers and pension funds still rely on manual labour. Under the new rules, many so-called “buy side” investors will be required to post margin to back their swaps for the first time.
The new investors join nine other banks, including Goldman Sachs, Barclays, Credit Suisse, State Street and Deutsche Bank, as well as ICAP in making an investment in AcadiaSoft. ICAP is also making a further unspecified investment in AcadiaSoft.
The project is due to be released in stages, with an initial margin calculation and reconciliation support pilot later in the third quarter. TriOptima is due to connect to the platform in October.
At the same time AcadiaSoft also promoted Chris Walsh, formerly chief operating officer, to be its chief executive. Former head and co-founder Craig Welch, retired.
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