Post-trade solutions provider Traiana has added a number of new sell-side firms to its Harmony contract-for-difference (CFD) equity swap network, which it says will facilitate greater investment in emerging markets.
The Traiana Harmony network has added 26 executing brokers for give-up processing and 11 prime brokers for buy-side client servicing in the past year, with the latter comprising firms such as Barclays, Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank, J.P. Morgan, Morgan Stanley and UBS.
According to Traiana, use of its CFD equity swap network can help increase the end-to-end visibility of exposures and improve control for the post-trade processing for give-ups, allocations, swap confirmation and clearing.
“Using the Harmony network, dealer-to-dealer and dealer-to-client processing of CFD equity swaps can be normalised, improving the efficiency of allocations, confirmations and electronic processing,” Roy Saadon, co-founder and general manager, Traiana, told theTRADEnews.com.
Saadon added that use of CFD equity swaps were becoming more popular among buy-side traders as a way of gaining exposure to emerging markets – such as the BRIC countries – without having to purchase actual equities. They can also provide some tax relief, for example in the UK, where such instruments are exempt from stamp duty.
Many investors simply want to trade the P&L performance of a company via a synthetic instrument that has been tailored to meet their needs by their broking counterpart, but do not find such synthetic vehicles readily available” he said. “Using the Harmony network buy-side firms can ease the regulatory burden associated with these instruments, such as tax liabilities or access to restricted markets and still maintain the same transparency a cash product offers.”
As flow through the network increased, Saadon said Traiana would then look to funnel the equity trades that are used as a hedge when writing CFD equity swaps through a central counterparty (CCP). Such transactions are currently settled bilaterally between executing brokers and prime brokers, resulting in expensive bilateral settlement costs and counterparty risk.
“As volumes through the Harmony network continue to rise, it makes sense to now feed these trades to a CCP where they can be netted down with the exchange-based flow that already goes there,” said John Lloyd, director of product marketing, Traiana. “This will significantly reduce the costs involved in the settlement of these trades and help further ensure the safety of CFD equity swaps.”