NEX Launches Automated Settlement Netting Service

NEX Optimisation announced it has launched the industry’s first fully automated Settlement Netting Service to streamline the bilateral settlement netting process for market participants.

The Settlement Netting Service will automate settlement netting of over-the-counter foreign exchange (FX) trades and will expand its offering to all asset classes in the future.

Settlement failure rates are estimated at approximately 3% for the $1.5 billion (USD equivalent)[1] which is settled on a daily basis between clients and their dealers. NEX Optimisation’s new service will eliminate the manual process of netting between clients and their dealers by applying an API to seamlessly communicate with the clients’, banks’ and custodians’ systems and reconcile payments. Through an automated workflow, market participants will have complete visibility into and control over the payment preparation process for net and gross trades, which will minimise their intra-day settlement exposure, reduce settlement fails and provide greater certainty of funding needs.

Developed using Traiana’s technology infrastructure, the service will bring multiple benefits to the market such as:

Improved settlement efficiency by reducing the lead time between netting and settlement which results in additional credit to support trading activities;

• reduced operational and funding costs, settlement fail breaks and costly claims;
• reduced risk exposure and adherence to regulatory regimes such as the FX Global Code of Conduct and settlement risk management principles (BSBS 241[2], SR 13-24[3]);
• an increase in the number of trades that can be net settled; and
• a standardized process for netting participants.

Joanna Davies, Managing Director at Traiana, said: “The Settlement Netting Service will allow traders to execute with any bank on any trading venue and enjoy optimised, efficient, automated and consistent post-trade processing from execution through settlement. Settlement netting processes have traditionally been fragmented across organisations and asset classes, requiring extensive manual processing, which does not reflect the way in which the market is moving. By automating the entire netting process via a central hub, we’ve brought an essential tool to the market that will significantly reduce breaks and have a direct impact on costs for our clients.”

[1] http://www.bis.org/publ/rpfx16fx.pdf

[2] http://www.bis.org/publ/bcbs241.pdf

[3] https://www.federalreserve.gov/supervisionreg/srletters/sr1324.htm