European financial players have to adapt their middle and back offices to really benefit from the opportunities brought by MiFID.
The explosion in alternative liquidity pools since the implementation of MiFID has created opportunities for improved execution and delivered a potential competitive advantage for brokers. However, it has also brought additional complexity for middle and back offices due to the proliferation of central counterparties (CCPs) and the number of clearing relationships that are required. Participants require flexibility in their operational systems if gains in the front office are not to be lost due to increased cost and risk in post trade processing.
For instance, an institutional broker who is trading equities across a number of European exchanges, as well as OTC bonds, will have several technical requirements. Front office demands to trade on MTFs, such as Chi-X or Turquoise, mean the operations staff must have a solution to manage this increasing complexity.
The trend is for orders to be filled with higher number of small-value market executions. The increasing volumes, even with higher STP rates can lead to exceptions, errors and higher overall clearing costs.
The clearers for LSE, Chi-X, Turquoise and other MTFs offer netting opportunities to keep clearing costs competitive. To take advantage of these netting opportunities but also keep a full audit trail of their operations, brokers need to automate the capture of gross trades and the creation of net trades, and be able to reconcile their net positions with each clearer.
GL RIMS Netting Module, a stand alone ‘service based’ solution, automatically captures trades from third party front office systems, identifies them as requiring netting and then automatically creates the net trades from user defined criteria such as counterparty, market, currency and value date. These net positions can be monitored intraday by management and the users on Internet-browser deployed screens. At the end of the trading day, GL RIMS can automatically reconcile with the clearer’s net positions.
GL RIMS Netting Module provides a simple and efficient solution to automate settlement netting. It allows organisations to take advantage of the growing number of central counterparty initiatives and to automate bi-lateral arrangements.
SunGard’s GL RIMS clients are achieving significant benefits since deploying the GL RIMS Netting Module. Fewer settlements to manage, significantly reduced messaging traffic and repairs; leading to reduced costs, operational risk and greater efficiency. Netting has, on average, reduced 200 gross trades to one net transaction. This has resulted in a 30% reduction in message traffic, clearing and repair costs. Automation has allowed the redeployment of staff to critical or more added-value tasks, making better use of their specialist business knowledge.
By using GL RIMS Netting Module, brokers can quickly choose to transact on new trading venues and use their associated CCP initiatives, without the need for new systems and extra staff.
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