SWIFT and CCPs deliver OTC equity clearing solution

European central counterparties have teamed up with interbank payments cooperative SWIFT to automate clearing of OTC equity trades, a move that is expected to increase the safety of bilateral trades.
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European central counterparties (CCPs) have teamed up with interbank payments cooperative SWIFT to automate clearing of OTC equity trades, a move that is expected to increase the safety of bilateral trades.

Using the solution bilateral OTC equity trades can be sent via SWIFT to a CCP, which acts a guarantor between counterparties, therefore eliminating counterparty risk. SIX x-clear, EuroCCP and LCH.Clearnet are the first CCPs to sign up for the service, with more expected to sign up once the solution goes live in Q2 2011.

According to Andrew Simpson, business development manager for EuroCCP, the new service will be of minimal cost to brokers because of the opportunity to net transactions.

“Brokers will be able to net the trades they clear using this SWIFT service with those done on the trading venues also served by the CCPs into a single settlement obligation, which will help to keep costs low,” Simpson told theTRADEnews.com. “We are following regulatory direction in trying to bring safety to all parts of the markets.”

Brokers will specify which CCP they wish to send their OTC equity trades to using SWIFT's Accord for Securities trade and settlement platform. SWIFT will then provide the CCP in question with a matched transaction that they can act as a guarantor for. A testing and pilot phase is due to start at the start of 2011 with a number of prime and executing brokers including Bank of America Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs and UBS.

“This initiative will transform Accord for Securities into an industry infrastructure that enables centralised settlement flows and will significantly reduce costs and risks,” added Alain Raes, chief executive, EMEA at SWIFT. “We are delighted to already have EuroCCP, SIX x-clear and LCH.Clearnet on-board and are keen to bring on additional CCPs in the future to give our customers the widest possible choice of CCPs they want to reach over SWIFT.”

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