Quantile and LCH ForexClear Deliver FX Smart Clearing
- FX Smart Clearing service enables participants to selectively clear FX Forwards via LCH ForexClear to significantly reduce capital requirements and counterparty risk.
- Quantile’s optimisation then ensures the risk reduction is achieved within the relevant IM and risk constraints.
- Developed in response to customer demand for solutions which simultaneously manage counterparty risk, initial margin and capital.
Quantile and LCH ForexClear, both LSEG Post Trade businesses, today announced they have delivered the market’s first FX Smart Clearing service. The service, which went live on 15th November, enables participants to selectively clear FX Forwards via LCH ForexClear to significantly reduce capital requirements and counterparty risk.
It works by intelligently selecting existing uncleared trades to move to LCH ForexClear, and optimising portfolios with new rebalancing trades to reduce counterparty risk and the financial resources a participant must hold. The optimisation can be fully customised, enabling participants to control their risk and resource changes, as well as their preferred currency pairs and trading partners. Portfolios can also be potentially compressed to significantly reduce trade count and notional.
FX Smart Clearing was developed in response to customer demand for solutions which simultaneously manage counterparty risk, initial margin (IM) and capital. The introduction of SA-CCR has increased capital requirements for FX which creates a new incentive to clear, assuming the differences in cleared and uncleared IM are appropriately managed.
By moving FX Forwards into LCH ForexClear, participants benefit from multilateral netting, lower counterparty risk weights and settled to market (STM) treatment – all of which reduce capital requirements and counterparty risk. Quantile’s optimisation then ensures the risk reduction is achieved within the relevant IM and risk constraints.
Prior to the recent go-live, Quantile and LCH ForexClear have delivered several Proof of Concept (PoC) runs which have demonstrated the significant potential of the service. 19 participating banks achieved an average reduction in capital requirements of 51%, without increasing IM significantly. Quantile and LCH ForexClear believe there is scope to increase capital reductions to 70%+ as the clearing network and eligible products grow.
Esben Urbak, Head of Product, Quantile, said, “We are pleased to have pioneered FX Smart Clearing with LCH ForexClear, and would like to thank our clients for their participation and support in the first live run. By using Quantile’s optimisation to intelligently clear risk, we can now drive new levels of capital reduction and enable participants to access the benefits of clearing in an extremely operationally efficient way. The launch cements Quantile’s commitment to help make FX portfolios easier, and cheaper, to maintain.”
Andrew Batchelor, COO and Head of Product, LCH ForexClear, said, “We are delighted to have partnered with Quantile to deliver FX Smart Clearing. LCH ForexClear is a very efficient place to hold risk, and by leveraging Quantile’s optimisation service, we can now significantly reduce capital and funding requirements under SA-CCR for our members. We look forward to welcoming more participants to the live service so they can benefit from the strong network, improved capital efficiency and further optimisation benefits from facing a CCP.”
Quantile and LCH ForexClear will be offering regular FX Smart Clearing runs from early 2024 for FX Forwards, with other cleared products to follow.
For further information
Harriet Leatherbarrow / Nandeep Roopray
Tel: +44 (0)20 7797 1222
LCH. The Markets’ Partner
LCH builds strong relationships with commodity, credit, equity, fixed income, foreign exchange (FX) and rates market participants to help drive superior performance and deliver best-in-class risk management.
As a member or client, partnering with us helps you increase capital and operational efficiency, while adhering to an expanding and complex set of cross-border regulations, thanks to our experience and expertise.
Working closely with our stakeholders, we have helped the market transition to central clearing and continue to introduce innovative enhancements. Choose from a variety of solutions such as compression, sponsored clearing, credit index options clearing, contracts for differences clearing and LCH SwapAgent for managing uncleared swaps. Our focus on innovation and our uncompromising commitment to service delivery make LCH, an LSEG business, the natural choice of the world’s leading market participants globally.
Quantile is a market-leading optimisation provider that reduces counterparty risk, notional and capital requirements to increase the efficiency and liquidity of derivatives markets, improve returns for clients, and make the financial system safer.
Since launching its first services in 2017, Quantile has eliminated trillions of dollars of gross notional through interest rate compression and billions of dollars in initial margin through counterparty risk optimisation.
Quantile’s clients, including all the top tier global banks, regional banks, buy-side firms and other large institutional market participants, are serviced from offices in London, New York, Amsterdam and Sydney.
Quantile is an LSEG Post Trade Business.