ION Markets for execution and clearing: Francesco Margini at FIA EXPO 2022

The FIA EXPO 2022 conference recently took place on 14 -15 November and gathered the most esteemed leaders of the derivatives trading industry at the Sheraton Grand in Chicago River.

The most prominent topics within the industry were attended to, including “regulatory battlegrounds” in derivatives markets, clearinghouse risk, standards in derivatives, treasury market structure, geopolitics on commodities markets, sustainability, regulatory enforcement, post-trade technology, the future of derivatives trading (including 24/7 markets and DMA), and the ‘crypto winter’ as FTX collapsed before their eyes.

FinanceFeeds had the opportunity to speak with Francesco Margini, Chief Product Officer for Cleared Derivatives at ION Markets.

ION has been providing capital markets technology and data solutions for 25 years, including global connectivity and execution, clearing and settlement services, risk management, implementing innovative real-time trade processing capabilities and digitization and automation of workflows.

It provides the infrastructure backbone for the largest sell-side institutions, namely banks and brokers. Specifically, ION Markets provides the sell-side with execution and clearing services for the benefit of the buy-side, investors, insurance companies, pension funds, etc.

Banks and brokers must remove redundant manual tasks

“In cleared derivatives, we operate in the traditional futures and options space as well as OTC products and other asset classes cleared by the largest global Clearing Houses (CCPs), such as interest rate swaps (IRS)”, said Margini. “Our trading solutions are connected to all major exchanges around the world through our global infrastructure. Banks and financial intermediaries provide execution and clearing services to their client base through it.”

Margini explained the need for ION Markets’ cleared derivatives solutions in today’s highly competitive and globalized industry, which is dealing with such large trading volumes.

“One of the reasons why the cleared derivatives segment is struggling to cope with such large volumes and obtain operational efficiency is because most banks and brokers rely on legacy systems which require them to perform extensive and time-consuming manual tasks. The recent surge in trading volumes has exposed the significant limitations”, he said, pointing to a tipping point since the pandemic, which showed the need for scalable technology using automation that removes redundant manual tasks.

Traditionally, banks either develop or adopt systems produced by technology vendors. Proprietary systems or vendor legacy solutions, however, come at a great cost and risk for banks and brokers. Adopting modern technology developed by a market expert, on the other hand, minimizes risk, even from a compliance standpoint. It also adds value with the integration of execution, allocation, clearing, and settlement, with no breaks as well as improving the end-user experience.

In recent years, the sell-side has faced tremendous pressure to move away from legacy systems to adopt real-time processing. According to Margini, disconnected legacy systems pose significant risks.

ION Markets rebranded cleared derivatives suite to XTP

Talking about post-trade, Margini discussed three areas with FinanceFeeds Editor-in-Chief, Nikolai Isayev: market structure, liquidity, and transparency, which need to be discussed among actors and regulators; and technological issues faced by businesses, which is where ION believes it can be a catalyst in changing the industry.

Ahead of FIA EXPO 2022, ION Markets announced the expansion of its execution, clearing and settlement solutions as an integrated, front-to-back suite under the XTP brand. The full front-to-back product suite harnesses the power of connected data to provide real-time insights into net positions, margins, risk, analytics, commissions, and more, addressing the demands of the derivatives market.

Same day settlement to address systemic risk

Also on post-trade, Margini spoke about the ongoing T+1 vs T+0 settlement discussion which has gained more attention ever since the recent shifts in asset valuations across several asset classes.

The ION Markets executive believes that tackling t+1 settlement and bringing same day settlement is a game changer as it will allow firms to make decisions in real time and have a holistic view of what clients are doing in order to better manage operational risk and address liquidity requirements – covering margins.

“There’s an asymmetry in the industry because clearing houses have real time visibility of risk and can immediately take action, but banks don’t have the same capabilities vis-a-vis their client base as they cannot manage their exposure and liquidity in a timely manner. This can lead to increased systemic risk that needs to be addressed.”

Data and analytics for investment, risk and operational management

Margini also noted that ION Markets is a powerhouse in data and analytics solutions and is equipped to provide a real-time feed of clients’ internal systems. This is essential because it helps the sell-side improve investment decisions, as well as manage operational risks in time.

The need for data and analytics has increased rapidly since the sudden shift in valuations across several asset classes driven by current macro events in the backdrop (inflation, war, pandemic, sterling crisis, etc). This forces firms to manage risk more efficiently and hold collateral to cover for these types of movements that can be extremely rapid. Especially as the world is now interrelated across different assets and shockwaves can ripple through financial markets, Margini added.

The FIA EXPO 2022 provided an opportunity for derivatives industry players, such as ION Markets, to be on top of what’s going on in the industry and share insights with other members.

Events like these, according to Margini, are important as there is immense value in exchanging information and understanding the needs of banks and brokers, and the emerging regulatory trends covering market infrastructure and investor protection.