Tech firm Capitolis has announced plans to connect to LCH’s FX Smart Clearing solution in order to optimise processes and save banks from increased costs arising from the Standardised Approach to Counterparty Credit Risk (SA-CCR).
This collaboration with LCH ForexClear – part of the London Stock Exchange Group’s post trade division – will also help banks overcome other risk measures in the FX market – including those related to FX forwards, FX swaps, and cross-currency swaps.
In practice, Capitolis’ post-trade optimisation technology locates the optimum capital and funding state between cleared and uncleared markets, moving optimised trades where fits best.
Its proprietary technology “optimises capital risk-weighted assets and funding requirements for the OTC FX market to mitigate counterparty credit risk across global banks”.
James Pearson, head of LCH ForexClear, highlighted how through this connection an increased number of users will benefit from FX Smart Clearing and thus “enable capital and funding requirement benefits under SA-CCR.”
“FX Smart Clearing is another tool we are providing for banks to financially optimise their resources, unlock capital constraints and help to ensure a safe and efficient financial system,” he added.
Capitolis reached a network yield of 42% of total funding costs – including capital funding – during a proof-of-concept with nine global banks.
Following this, the company is set to roll-out the service alongside LCH ForexClear to help global banks reduce capital burdens and balance margin requirements. With this functionality, Capitolis plans to add additional banks into future FX Smart Clearing exercises.
Gil Mandelzis, chief executive and founder of Capitolis, said: “The relationship with LCH ForexClear, coupled with our network of participating global banks, is a sophisticated and advanced model for the industry, bringing multi-lateral optimization to the next level by including a clearing node.”