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Getting to Grips with Trade Clearing Volumes

Nicolas Gregoire, Senior Director, Trading and Processing, Cleared Derivatives

July 08, 2022

According to a 2021 joint survey by FIA & Coalition Greenwich, clearing tops the functions that require modernization and innovation for the sell-side firms interviewed, along with trade reporting and other back-office functions.

Historically, trade clearing has been the neglected child of the post-trade family, with disparate overall levels of automation and straight-through processing (STP) depending on geography and firms’ profiles. But the surge in volumes driven by market volatility, regulatory and market pressure for increased top day transparency and trade management automation has led to a shift in practice and focus overall. FCMs and firms with a fairly high level of automation are looking to further reduce their manual processing, while smaller firms that traditionally lag behind in terms of STP are starting to embrace processing standardization and industry best practices.

Why modernize your clearing business?

The cost of clearing has been driving the need for intraday monitoring of exposure and risks. Meanwhile, market volatility is placing pressure on existing systems and operational processes to perform. By improving internal workflows, firms can better accommodate increasing volumes, keep costs down and more efficiently manage their entire end-to-end trade workflow.

Trade clearing has also become more complex and time sensitive in areas such as average pricing and allocations. This calls for more flexible and scalable systems to handle processing, as well as a surge in volumes, which have reached three to five times the average level. The events in March 2020, and more recently in February 2022, have shown there is a dire need to transform the clearing business and upgrade to next generation technologies.

Technical upgrades that leverage natively cloud technology meant enables systems were more and more popular and more suited to adapt quickly and cost effectively to changing market demands.

No matter your size

The clearing business is evolving, with smaller firms looking to move towards self clearing, reduce their clearing risks by using more carrying brokers, or simply handle more complex instruments traded by the CCPs. They can no longer afford to process their trades manually, and will need to automate.

By being able to scale their businesses, firms will not only be able to manage their processing more efficiently, but also attract more business. Institutional customers and more savvy retail clients performing their due diligence request increased transparency on top day from their executing and clearing brokers.

Do It Yourself or via Managed Services

More firms are choosing to outsource part of their post-trade business in order to concentrate on core activities and bring value to their clients. Celent’s CIO Market Infrastructure Survey 2021, for example, found that 61% of market infrastructure CIOs are considering outsourcing either services or technology.

When upgrading to a next generation clearing solution, a lot of firms are coupling technology uplift with operating model transformation. Choosing the right provider to ensure a smooth transition is key, and as such firms need to look closely at potential providers’ bandwidth, domain expertise (solution and industry) and thought leadership.

What FIS brings to the table

With over 100 post-trade derivatives clients, FIS is the industry leading solution provider. Over half of our client are leveraging FIS Managed Services, either via our Private or Hybrid Cloud. We also offer Business Process as a Service (BPaaS) services for clients looking at operational outsourcing. Live with global FCMs, Trade Clearing provides a scalable and flexible middle office solution automating the entire process from CCP connectivity through to allocation, give up/give in/full service and matching/clearing. Trade Clearing is part of a core set of functionality offered by the FIS CD solution. Firms can onboard a new technology stack and unlock a wider rationalization of their post-trade ecosystem by harnessing a unified solution across the middle and back office.

Get in touch to find out more.