Omgeo and EuroCCP's pan-European equities central counterparty service for hedge fund transactions has executed its first live trade with Credit Suisse and Citadel.
The new service, based on the Omgeo Central Trade Manager (Omgeo CTM) and EuroCCP's central counterparty service, allows executing brokers and prime brokers to clear hedge fund transactions, streamlining the processing flow and mitigating risks, say the partners.
The joint service, which initially covers 15 European markets, has been through a pilot phase ahead of the first live trade involving Credit Suisse and Citadel. It will now be gradually rolled out to hedge funds and their executing and prime brokers. It is also the intention to make it available to institutional fund managers and their brokers in the future.
Hedge funds will access the service through Omgeo CTM and through their executing and prime brokers who are EuroCCP participants. These brokers will authorise locked-in trades and release them to EuroCCP, where the trades are novated, netted and routed to the relevant European central securities depository for settlement on a netted basis.
Neil Martin, MD, cash securities clearing and settlement, Credit Suisse, says: "Adding central counterparty netting to the trade processing flow between us and our clients enables us to reduce counterparty risk and improve operational efficiency."
Diana Chan, CEO, EuroCCP, adds: "In today's environment, settlement of hedge funds' trades between their executing and prime brokers occurs bilaterally without any CCP trade guarantee, exposing these parties to counterparty risk. By introducing a CCP in this settlement chain, our goal is to help substantially reduce this type of risk between trading parties while also providing them with added efficiencies by netting down the number of transactions that need to be settled in a fully automated process."
The Omgeo/EuroCCP tie-up has been in gestation for the past fifteen months. The utility is set to face fresh competition from financial messaging network Swift, which last month announced plans to link its Accord securities matching system to a range of central clearing counterparties, including EuroCCP, Six x-clear and LCH.Clearnet. Testing with the three is slated to begin in the first quarter, with BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, and UBS all lined up for live broker trials in Q2.