A new pan-European equities matching and central counterparty clearing (CCP) service for hedge fund transactions will streamline process flows and mitigate counterparty risks, according to post-trade processing firm Omgeo and clearing house EuroCCP.
The two companies confirmed that the service has completed its first live trade, between broker Credit Suisse and a hedge fund business of US-based financial institution Citadel.
Based on Omgeo's Central Trade Manager, which provides a fully automated matching service, and EuroCCP's CCP service for clearing and settling pan-European cash equity trades, the joint service is designed to route cash equities trades from hedge funds to their brokers who release them to EuroCCP for novation, netting and routing to the relevant central securities depository for settlement on a netted basis.
Currently covering 15 European markets, the platform will be rolled out to hedge funds and their executing and prime brokers, as well as to institutional fund managers and their brokers.
“Having access to the benefits of a CCP solution and the trade guarantee it provides is of great value to hedge funds and investment managers,” said Todd Schroeder, deputy head of global operations at Omnium, an affiliate of Citadel, adding that straight-through processing and a greater degree of risk mitigation for clients are the most important benefits of the new platform.
“In today's environment, settlement of hedge funds' trades between their executing and prime brokers occurs bilaterally without any CCP trade guarantee, exposing these parties to counterparty risk,” said Diana Chan, CEO of EuroCCP. “By introducing a CCP in this settlement chain, our goal is to help substantially reduce this type of risk between trading parties while also providing them with added efficiencies by netting down the number of transactions that need to be settled in a fully automated process.”
EuroCCP has stated that it expects further hedge funds and brokers to come on board the new system in the coming months. Both EuroCCP and Omgeo are subsidiaries of US post-trade utility The Depository Trust and Clearing Corporation.