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Omgeo and EuroCCP’s new pan-European equities matching and central counterparty (CCP) clearing service for hedge-fund transactions went live in October, executing its first live trade with prime broker and executing broker Credit Suisse and hedge fund manager Citadel.

Credit Suisse and Citadel intend to continue to partner with Omgeo and EuroCCP to ensure that their interfaces become scalable and ready to be extended to a broader range of counterparties in the future.

The service allows executing brokers and prime brokers to clear hedge fund transactions, and will streamline the processing flow and mitigate the counterparty risks associated with these types of institutional cash equities transactions.

Breaking new ground

The new processing solution combines Omgeo Central Trade ManagerSM (Omgeo CTM), which provides a fully automated matching service, and EuroCCP’s central counterparty (CCP) service, which clears and settles pan-European cash equity trades. The joint service initially covers 15 European markets, with expectations for expansion to additional markets over time.

Following the successful piloting of the solution and first live trade, the service will be gradually rolled out to hedge funds and their executing and prime brokers. It is also the intention to make the service available to institutional fund managers and their brokers in the future.

Hedge funds will access the service through Omgeo CTM and through their executing and prime brokers that are EuroCCP participants. These brokers will authorize locked-in trades and release them to EuroCCP, where the trades are novated, netted and routed to the relevant European central securities depository (CSD) for settlement on a netted basis.

Customer views

Neil Martin, managing director, Cash Securities Clearing & Settlement, Credit Suisse, said, “We are pleased to successfully test and execute a first live trade on this trade matching solution. Adding central counterparty netting to the trade processing flow between us and our clients enables us to reduce counterparty risk and improve operational efficiency.”

Todd Schroeder, deputy head of Global Operations at Omnium, an affiliate of Citadel, said, “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. The ability to provide efficient straight-through processing, coupled with a greater degree of risk mitigation for our clients, is of utmost importance to Citadel and having this new service available to us in the marketplace is a major step in effectively meeting those needs.”

Reducing risk

Omgeo and EuroCCP have been working closely with an industry user group to develop the new processing solution.

Now that the links to Omgeo CTM and EuroCCP have been built and the new trade matching and CCP solution has executed its first live trade, the two companies anticipate additional hedge funds and brokers will come on board in the ensuing months.

“I am thrilled that our trade matching and central counterparty service is now operational with Citadel and Credit Suisse,” said Marianne Brown, Omgeo president and CEO. “This revolutionary new service promotes guaranteed settlement and reduced counterparty risk, as well as significant cost savings gained through settlement netting and cross netting, where we’ve seen obligations net to zero.”

Diana Chan, CEO of EuroCCP, said, “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. By introducing a CCP into 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. We are pleased to be the first CCP, in partnership with Omgeo, to bring this groundbreaking new service to market.” @