Clearing house technology massively outdated, says ICE Clear Europe head

Clearing houses must update their technology to deal with cleared OTC derivatives, according to Swann.

Clearing houses will have to significantly revamp their technology in order to serve an increasingly cleared derivatives world, according to the head of ICE Clear Europe.

Speaking at the FIA IDX conference in London Paul Swann, CEO of ICE’s European clearing house, said that current systems used by central counterparties (CCPs) will not be able to facilitate increasing volumes of cleared OTC derivatives products.

We are operating on in many cases 20 or 30 year old technology, and there are many inherent inefficiencies imbedded in some of the technology we use. So there are limitations around how we change our services to service new demands. Specifically from the OTC market where our traditional processes do not translate well,” said Swann.

“One of the main constraints around us serving new customers is actually the technology underpinning the cleared markets, both the technology clearing houses use and also the clearing members and clients. So I think we will see a revolution in how some of those services get delivered.”

Conversely, earlier this year Eurex Clearing released its latest clearing software, C7, which includes average pricing, among other features.

Swann also said it is now the role of the clearing house to provide capital efficient solutions to a sell-side community which has reduced its role in derivatives clearing. As cleared volumes of OTC derivatives increase at clearing houses, technology will also have to evolve.

“More and more OTC products will go through clearing, and we will have to evolve our risk management model and technology platforms to service those new clients,” Swann added.

Recently, some clearing houses have ventured into new service areas such as compression and portfolio margining to help clients deal with the capital-intensive regulations.

However, Swann added that there should be focus on dealing with current inefficiencies in the market rather than launching new services.

“In terms of delivering real value, providing better products that provide better capital treatment at the point of execution, rather than trying to deal with all the inefficiencies in the legacy products as part of an add-on solution, would be a much more fruitful debate and would bring a more standardised approach,” he added.