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November 4, 2013

Swap margin check in 10 millisecs

Clarus Financial Technology today announced the release of its CHARM product, for pre-execution or pre-clearing acceptance checks of Interest Rate Derivative trades. CFTC Regulation 1.73 states that Clearing FCMs accepting orders for automated execution on a SEF, need to use automated means to screen orders for compliance with risk-based limits. CFTC Regulation 1.74 establishes STP requirements for FCMs, SEFs and DCOs and notes that a near-instantaneous acceptance or rejection of each trade provides certainty of execution and clearing, reduces costs and decreases risk. Amir Khwaja, CEO of Clarus Financial Technology explains, “The requirement for near-instantaneous acceptance or rejection, is resulting in FCMs believing that this is only possible by pushing daily DV01 risk-limits to Hubs and SEFs.” “However this is an in-efficient use of margin as it fails the simple test of margin benefit for a risk reducing trade. It also means an FCM is outsourcing it’s intra-day risk management to an external infrastructure, which for many firms is not a desirable outcome.” “While SEFs and Hubs are offering to forward “ping” requests to FCMs, this requires FCMs to provide the complex compute intensive part of the process before responding with an accept or reject”. “By announcing the capability to perform a 10 millisecond check for the pre-trade incremental impact on an account’s initial margin and doing so on commodity hardware, we are making a “ping” response a truly viable model for any FCM”. “In an environment where collateral for margin is scarce and becoming more expensive as interest rates rise, those FCMs that offer their clients the best intra-day utilization of margin are going to have an advantage in the battle for market share.” More detail on CHARM is available here.


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