The requirement to better mitigate risk in the wake of the financial crisis has prompted a significant growth in centralised clearing.
The number of clearing houses and central counterparties (CCPs) operating across the financial markets has increased and continues to grow. This has created a challenge for financial institutions that must connect to them, with costs and risks increasing with every different proprietary format and network they need to support.
SWIFT has a vital role to play in the clearing space, bringing standardisation to streamline communications between clearers and their participants, to the benefit of both.
One clearing house that has recognised the value of standards in this area is LCH.Clearnet, which is rolling out an initiative to provide its clients with financial statements in XML, following the ISO 20022 standard methodology.
The creation of SWIFT's Clearing solution - combining SWIFT MX messages based on the ISO 20022 methodology and SWIFT connectivity - has been done in close collaboration with the industry through a clearing working group, convened to allow members of the clearing community to meet, share pain-points and agree on future standardisation.
SWIFT Standards worked with LCH.Clearnet to ensure the XML statement message meets the market's requirements, in terms of asset class coverage and level of detail of information. This ensures the messages could be reused for communication with other CCPs.
LCH.Clearnet's standardised statement messages - available in a live production environment from August 2011 - will enable its customers to achieve levels of straight-through processing (STP) not possible with printable, non-standardised text file formats.
LCH.Clearnet is also committed to further enabling its customers to achieve higher levels of STP, and gain more from their investment in SWIFT and secure standardised messaging, by rolling out ISO 20022 bilateral messaging over SWIFT later this year.
"As new regulation mandates more centralised clearing, it is vital for risk management and cost and operational efficiency that financial institutions can reuse standardised connectivity solutions to streamline their communications with multiple CCPs," says Alain Raes, Chief Executive, EMEA, SWIFT. "We are delighted that LCH.Clearnet is among the growing number of clearers that are recognising this, to the great benefit of the market as a whole."
SWIFT's Clearing solution
SWIFT has developed new XML messages following the ISO 20022 methodology, in collaboration with the community, to support all the communication flows for clearing equity and fixed income trades. The new messages, transmitted via the SWIFT network, support trade notifications and statements, position management, margin calls and collateral management and settlement management.
SWIFT's Clearing solution streamlines clearing communications, simplifying connectivity to clearers for financial institutions. By reusing SWIFT, market participants can avoid implementing proprietary formats and networks, and further extend the benefits of their investment in SWIFT. They can be up and running with their CCP communications more rapidly, and the use of international standards minimises the risk of errors and misinterpretation.
The new SWIFT standards-based solution enables the clearers themselves to offer a better service to their communities of users, helping them avoid the costs and risks inherent in the use of a multitude of proprietary formats and networks. The clearers also benefit from being able to reuse their SWIFT infrastructures, and sign up new users more quickly and easily.