SEFs Develop Matching Engines

Cleartrade Exchange hosts anonymous bids/offers and order books.



Operators of execution venues for trading OTC swaps are building out functionality to address the pre-trade, intra-trade and post trade requirements being implemented U.S. regulators under the SEF rules but also those emerging in Europe under MiFID and EMIR.



Cleartrade Exchange, for example, provides a combination of pre-trade, intra-trade and post-trade functions.



“The platform is a sophisticated matching engine, tailor-built for the OTC swaps market,” Richard Baker, CEO of Cleartrade Exchange, told Markets Media.



For pre-trade, the platform hosts dynamic and multiple order books, automation of spreads and ratios (time-based, quantity and quality bases) from outright positions. The platform has real-time anonymous events (bid/offer) and trade transparency feeds - one of the core requirements of the new SEF rules, available to all participants.



“Cleartrade Exchange specifically focused on the gap between execution and clearing in the development of its platform and responded with a real-time integrated Credit Filter as a gateway between pre and post trade processing to clearing houses,” said Baker.



The Credit Filter allows general clearing members to set initial margins for trading parties, thus enabling client orders to be "firm—pre-cleared" on the pre-trade order books. This mitigates the risk associated with the current "subject to clearing" model where counter-parties agree a trade but wait for hours for the trade to be accepted to clearing.



“This embedded functionality also dramatically improves the pre-trade risk visibility to the clearing member,” said Baker.  “The FCM can see all the bids and offers of their clients as well as real-time trades, thus having a full view of exposures and risk.  They can then adjust overall margining strategies promptly.”



Post-trade, the Cleartrade platform also incorporates a full trade repository function, whereby all trades are stored for seven years and all counterparties and regulators have access to the trade repository. The Cleartrade platform also incorporates a full straight-through-processing engine and is connected to various clearing houses (London Clearing House, NOS Clearing, SGX and soon CME).



Cleartrade is repackaging its platform for sale as an “SEF-in-a-box” to anyone else who wants to get in the business, which is expected to see a surge due to new regulatory requirements for executing and clearing OTC transactions.



“Customers of the SEF in a Box solution can operate a private market place with the benefit of the post-trade electronic processing and reporting functions of the Cleartrade Platform,” Baker said. “Clients utilizing the SEF in a Box service are also future-proofing their business. Cleartrade Exchange is a fully regulated market place and, as regulatory reform becomes law over the next 12-18 months, customers can become full members of the Cleartrade Exchange and meet the requirements of the new rules without costly technology and operational upgrades. “