Traiana has added the support of a further seven futures commissions merchants (FCMs) to its CreditLink service ahead of the November 1 regulatory deadline for pre-trade screening of trades conducted on Swap Execution Facilities (SEFs).
These include BNP Paribas, BNY Mellon, Deutsche Bank, RBS, UBS and Wells Fargo as well as other globally recognized clearing firms. These FCMs are in addition to Barclays, BofA Merrill Lynch, Citi, Goldman Sachs and J.P. Morgan, who were all previously announced. Traiana now has a total of 15 FCMs supporting CreditLink, a significant proportion of the market.
“In advance of the November 1 milestone, which is important for the whole industry, a number of participants wanted to be sure their clients and the market knew they were connected to CreditLink,” said Nick Solinger, head of product strategy and chief marketing officer at Traiana, a post-trade processing subsidiary of interdealer broker Icap.
CFTC regulations require that a clearing member define limits and must carry out pre-trade credit checks on clients’ orders prior to execution on SEFs. To meet these regulatory requirements, CreditLink acts as a centralized hub and provides trading platforms, clearers/prime brokers, executing banks and buy-side firms the ability to monitor and manage pre- and post-trade credit in real-time across trading venues in a consolidated view.
“That is a fundamental change to the market infrastructure," Solinger said. "CreditLink provides that capability to clearing members and their customers. We started building this for the swaps industry more than a year ago, to be ready for the expected deadlines. If these checks aren’t performed, clients already trading on SEFs for the past month would have to revert back to voice trading after November 1."
Although swap execution facilities have officially launched, not all swaps will be required to trade on SEFs until the Commodity Futures Trading Commission has decreed that a swap is “made available to trade” and is subject to a mandatory clearing requirement. Several SEFs—Javelin, TrueEx and Tradeweb—have already submitted MAT determinations to the CFTC.
“There is still a lot of work by the industry to be done in preparation for mandatory trading on SEFs, which is expected to take place in early 2014,” Solinger said. “A number of SEFs and CCPs still have to complete the workflow to ensure that all orders approved by CreditLink are guaranteed for clearing.”
CreditLink is connected to or being implemented by swap execution facilities (SEFs) and designated contract markets including Bloomberg’s SEF, GFI Group, ICAP/iSwap, ICE Swap Trade, Javelin, MarketAxess, SwapEx, TeraExchange, Tradeweb Markets, Tradition/Trad-X, trueEX and Tullet Prebon/tpSWAPDEAL and has been built in consultation with major clearing houses.
“While the industry is still implementing many aspects of the end-to-end infrastructure required for certainty of clearing of trades executed on SEFs, the CreditLink service is in live production operation and ready for pre-trade screening of orders on SEF venues,” said Solinger.
On September 26, 2013, the first trading venue completed a live credit default swap (CDS) index trade using Traiana’s CreditLink service as the credit hub to verify pre-trade credit limits. JP Morgan acted as the clearing member for the major buy-side participant on the trade. Since the October 2 deadline for SEFs, additional venues have tested and conducted numerous live trades.
Traiana’s CreditLink service offers clearing firms and buy-side firms the ability to manage trading and clearing limits in real-time for interest rate, credit and foreign exchange swaps. Firms are able to pre-screen orders to trade swaps prior to execution in low latency, providing certainty of clearing acceptance by their FCM at the time of execution.
