Nasdaq OMX, the US-based exchange operator, unveiled in Europe on Monday one of the first clearing systems that allows “real-time” risk management for multiple exchange-traded assets and over-the-counter derivatives.
The move is a sign that market operators believe that the speed at which trades are happening, increased market volatility and G20 reforms pushing greater use of clearing, especially for OTC products, mean that clearing systems must be able to monitor intra-day risks as far as possible in real time.
Currently many clearing systems operate on old technology that only allows for this to happen once or twice a day, or at the end of the day.
The new Nasdaq system, known as Genium Risk, will operate for its Nordic clearing house. It would provide the clearing house with “a real-time risk management solution, including new tools for improved risk monitoring and handling of incidents for derivatives clearing”.
In addition, “capital efficient risk models for fixed income and equities will optimise the use of member collateral”, Nasdaq said.
Hans-Ole Jochumsen, president of Nasdaq OMX Nordic, said: “With the uncertainty there is an increased risk that things are moving very fast and you need to be able to have real time capability to monitor this and have an intra-day margins calls.
“The volumes we are talking about coming in for clearing are also very big. That also means that clearing capacity will be much higher and there is so much more to protect.”
According to a recent report by Tabb Group, a consultancy, there will be a need for significant upgrades in clearing technology to cope with an estimated 20-fold increase in transaction volumes and demands for ever-faster trading speeds.
There will also be increased complexities in margin requirement calculations and finding offsets within portfolios to reduce margin requirements, straining systems further.
BM&FBovespa, the Brazilian exchange, last month signed contracts with Cinnober and Calypso, independent Swedish and UK clearing technology companies, for a real-time clearing system for equities, derivatives, bonds, foreign exchange and over-the-counter derivatives.
Nils-Robert Persson, Cinnober executive chairman, said: “Legacy clearing systems are clearly not able to match the flexibility and functionality required in a modern marketplace.”