Trading tools

Dodd-Frank spurs SWIFT and Omgeo updates

With the first trades to be made on US swap execution facilities (SEFs) set to take place later this year, two of the industry’s trade-matching service providers, SWIFT and Omgeo, are in the early stages of developing improved post-trade offerings to address the knock-on effects that US Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the G20’s over-the-counter (OTC) market reform plans will have on the derivatives markets.

As these reforms go into effect, industry experts expect these new regulations will spur the volume of electronically traded and centrally cleared swaps contracts as well as exchange-traded swaps-based futures contracts. SWIFT looks to address the needs of the OTC market while Omgeo has set its sights on the listed market.

“There is a lot of regulation coming down and people are interested in reliability, security and resiliency and that is driving spending in the post-trade space,” says Chris Church, chief executive Americas and global head of securities at Swift.

Such demands led SWIFT to implement “Project Concert,” an update of the banking cooperative’s Accord matching service, according to officials at a press briefing on its 2013 Sibos user conference and update on its 2015 business plan held late last week.

The Accord platform, which has been around for approximately 20 years, offers affirmation, allocation, confirmation and matching for bilateral foreign-exchange (FX), money-market and commodity trades in the treasury market.

“The current platform is very mature, cost effective and performs a couple of million matches per month, or 24 to 25 million matches a year,” says Brett Lancaster, managing director, Americas initiatives at Swift.

What the platform lacks is a great amount of flexibility to support the expected growth in over-the-counter (OTC) derivative instruments that the industry expects regulators will mandate for electronic trading and central clearing in the future.

“The refresh will allow Accord to support new asset classes relatively quickly,” says Lancaster. “To add new asset classes like derivatives or repos on the current system could take from six to 12 months to accomplish using the existing technology.”

Although SWIFT is investing heavily in the new version’s flexibility to support new instruments, officials do not plan to step into the markets currently served by Omgeo.

SWIFT lacks the qualified vendor status that allows organisations to match trades eligible for matching by the Depository Trust & Clearing Corp. (DTCC), which Omgeo has, and does not plan to pursue such a status, according to Lancaster. “Accord’s core business is outside of the US,” he adds.

Migrating to the new platform should be straightforward for current Accord users, since the new cloud-based application will rely on the same message types used by the current platform.

“We would not be asking clients to remove the guts of their engines and replace it with something else,” says Lancaster.

Addressing the needs of the opposite side of the futurisation coin, Omgeo looks to expand its affirmation, confirmation and matching services presence into the exchange-listed and options spaces, which are experiencing a rise in trading volumes as well as a lack of standardization and full automation of the trade lifecycle, according to Ted Leveroni, executive director of derivatives strategy and external relations at Omgeo.

The trade volume in listed futures and options will grow exponentially as more investors move out of the OTC derivatives markets, due to their higher margin requirements, he adds. “The International Swaps and Derivatives Association (ISDA) have said that the OTC market would shrink after the full implementation of the Dodd-Frank Act and as the list of instruments that are mandated to be cleared grows.”

The matching utility began preparing for swaps futurisation a few years ago by adding support for exchange-trade derivatives (ETD) to its Omgeo Central Trade Manager (CTM) central matching platform.

Since then, Omgeo has been working to create the necessary critical mass to create a sustainable user base.

According to Leveroni, Omgeo has had 28 investment managers and broker-dealers signed up for ETD support since the beginning of the year.

“Last year was a big sales year and we worked with several order-management system (OMS) partners to include support,” he adds.

Omgeo plans to release additional functionality through the rest of the year and into 2014, but Leveroni declines to provide specifics.

“Let’s say that the new features will address the pain points concerning matching commissions, timely trade-date reconciliations and dealing with multiple broker portals.”