Omgeo and EuroCCP have launched joint development of a pan-European equities central counterparty service for hedge fund transactions.
Omgeo and EuroCCP have launched joint development of a pan-European equities central counterparty service for hedge fund transactions.
The new service aims to mitigate the counterparty risks and reduce the inefficiencies that characterize the hedge fund/prime broker/executing broker processing chain.
The solution will be based on Omgeo Central Trade Manager, which services trades from execution through to settlement.
Omgeo and EuroCCP expect to conduct pilot testing of the new model this year and aim for a 2010 launch of the service.
Currently, the settlement of hedge funds’ trades between their executing and prime brokers occurs as OTC transactions without any CCP guarantee. All parties, including the underlying hedge funds, are exposed to counterparty risk.
The companies say the introduction of a CCP in this settlement chain substantially reduces counterparty risk between the prime and executing brokers and thereby also substantially reduces the exposure of the hedge fund to their executing brokers. A CCP also enables more efficient operations by netting down the number of transactions that need to be settled.
An institutional trade processing model will route hedge fund/prime broker equity trades – as well as other over-the-counter transactions – from trade matching through central counterparty netting and onward to settlement finality.
The model will enable a prime broker to authorise locked-in trades and release them to EuroCCP, where the trades will be guaranteed, netted and routed to the proper European central securities depository for settlement on a netted basis.
"EuroCCP is pleased to join forces with Omgeo on this important initiative for the hedge fund community," says Diana Chan (pictured), chief executive of EuroCCP. "We have a shared goal: to deliver automation and its benefits to as many counterparties as possible. With Omgeo’s strong base of hedge fund clients and EuroCCP’s robust central counterparty infrastructure and risk management expertise, together we can extend our capabilities to prime brokers and executing brokers."
"EuroCCP has done a fantastic job in offering the lowest settlement costs for its participants," says Marianne Brown, president and chief executive of Omgeo. "By working together to streamline trade processing for hedge funds, prime brokers and executing brokers, Omgeo and EuroCCP hope to reduce settlement costs even more. Together we share the goal of greatly reducing post-trade and settlement risks and look forward to leveraging each other’s expertise to bring meaningful value to the prime broker world."
The Omgeo/EuroCCP processing solution initially will cover equities in 15 European markets and seven currencies.
