Capitolis taps LCH’s FX Smart Clearing to further mitigate counterparty credit risk in OTC FX
“Combining FX Smart Clearing with our post-trade optimization technology is the ideal approach to managing capital for our customers.”
Capitolis has connected to LCH’s FX Smart Clearing solution to add another layer of optimization benefits to help banks overcome the challenge of increased costs resulting from the introduction of the Standardized Approach to Counterparty Credit Risk (SA-CCR) and other risk measures in the FX industry, particularly relating to FX forwards, FX swaps and cross-currency swaps.
The firm’s proprietary technology optimizes capital risk-weighted assets and funding requirements for the OTC FX market to mitigate counterparty credit risk across global banks.
Network yield of 42% of total funding costs
Capitolis’ post-trade optimization will be put to work in collaboration with LSEG’s post-trade division firm LCH ForexClear to help find the optimum capital and funding state between cleared and uncleared markets by moving optimized trades where they best fit.
In a proof-of-concept with nine global banks, Capitolis reached a network yield of 42% of total funding costs including the funding of capital in a demonstration of the benefits in capital and funding that FX Smart Clearing would provide to the company’s existing SA-CCR optimization service.
Capitolis will now roll out the service in conjunction with LCH ForexClear to reduce capital burdens and balance margin requirements for global banks.
LCH’s FX Smart Clearing combined with Capitolis’ post-trade optimization
Gil Mandelzis, CEO & Founder, Capitolis, said: “Combining FX Smart Clearing with our post-trade optimization technology is the ideal approach to managing capital for our customers. The relationship with LCH ForexClear, coupled with our network of participating global banks, is a sophisticated and advanced model for the industry, bringing multi-lateral optimization to the next level by including a clearing node.”
James Pearson, Head of LCH ForexClear, commented: “We are pleased to work with Capitolis. Through this initiative, more market participants can benefit from FX Smart Clearing, enabling capital and funding requirement benefits under SA-CCR. FX Smart Clearing is another tool we are providing for banks to financially optimize their resources, unlock capital constraints and help to ensure a safe and efficient financial system.”
