State Street Corporation has expanded its end-to-end derivatives solution to include an execution platform for the trading of derivatives products.
The launch of this swap execution facility (SEF), SwapEx, coincides with the 2012 implementation of significant regulatory changes in the United States and Europe.
State Street's comprehensive derivatives solution already includes clearing, servicing, custody and accounting, collateral management, valuation, and risk and analytics.
As the Dodd-Frank Act and similar measures under European Market Infrastructure Regulation (EMIR) and Markets in Financial Instruments Directive (MiFID) are adopted, the large majority of swap contracts currently traded over the counter (OTC) directly between two parties will migrate to multi-party electronic trading platforms, creating greater price transparency and increased liquidity as more participants enter the market.
SwapEx provides the first step in a global end-to-end solution that reduces operational risk through the automation of the many stages of derivatives processing, including execution, clearing, collateral management, cash and securities flows between the middle and back offices, transaction cost and risk reporting, valuations, and the reconciliation of positions. State Street plans to file its SwapEx registration with the United States Commission Futures Trading Commission (CFTC) when the application window opens later this year. In preparation for the launch, State Street has entered into an agreement with National Futures Association (NFA) to perform regulatory services for State Street's SEF.
"The derivatives market is in the midst of significant change as it moves away from a bilateral trading model to a centrally traded and cleared environment that offers greater price transparency, liquidity and enhanced risk management," says Clifford Lewis (pictured), executive vice president and head of the eExchange business at State Street. "State Street's core competencies as a custodian combined with the advanced technology of our eExchange platforms, including SwapEx, make the expansion of our derivatives solution to include a swap execution facility a natural extension of our business.
"Through State Street's comprehensive derivatives solution, buy-side clients will have a centralised means for trading, clearing and processing their swap positions, managing the related collateral demands, allocating, reconciling and accounting for their positions, automating manual processes, and helping to reduce operational risk," says Jeff Conway, executive vice president and head of Investment Manager Services at State Street. "This initiative is a strategic priority for State Street and emphasises our commitment to providing solutions for our clients' changing needs in an evolving marketplace."