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Banks to define TESI global standard for SEFs and OTC markets

The aim of the new Trading Enablement Standardisation Initiative (TESI), developed Etrading Software and supported by a number of sell-side banks such as BNP Paribas, Commerzbank, JP Morgan and RBS, is to enable technical integration between broker dealers permissioning systems and swap execution facilities (SEFs). It is hoped the open protocol will also later on be used to allow for the automated exchange of dealer to client trading relationships among other over-the-counter (OTC) asset classes, regardless of the venues.

The automated TESI initiative could improve operational transparency and control on the financial markets if it attracts enough users and conforms with the US Commodity Futures Trading Commission (CFTC) final rules governing SEFs, which were introduced this quarter.

A working group, which also includes Credit Suisse, Goldman Sachs, Société Générale and UBS, has been established to engage with execution venues and other stakeholders to create the new open industry standard TESI protocol for client and trader enablement on electronic trading platforms.

The first goal of the working group is to ensure the smooth migration of swaps trading onto the new bank-supported SEF, which is expected to go live later this year. With many new venues now opening up following the CFTC rules, however, the initiative may face challenges from other SEF platforms and protocols depending on the volumes it attracts. An aggregated service does though offer significant efficiency, ease-of-use and straight-through processing (STP) benefits, so it should find a ready audience.

With the impending launch of a number of SEF venues, banks see a growing mountain of work to enable their clients to trade with them across all of these platforms. To add to this problem, each of these platforms (both current and new) have different user interfaces for dealers to enable their client trading relationships. With no standardisation or computer-based application processing interfaces (APIs) to allow tighter integration between the banks and venues, the process is manual and labour intensive which brings the risk of permissioning errors. The TESI initiative could fix this.

According to the technology provider Etrading Software, adoption of the new TESI standards will deliver the following benefits to the industry:

• Faster client enablement.
• Increased operational efficiency.
• Reduction in STP failures.
• Help meet more stringent operational regulatory requirements.

“BNP Paribas fully supports the aim of creating a global standard for client enablement on electronic trading platforms,” Jack Utley, global head of electronic client solutions at BNP Paribas. “This initiative demonstrates BNP Paribas’ commitment to providing the best possible customer experience on our electronic trading offerings.”

According to Simon Maisey, global head of rates e-commerce at JP Morgan, the trading flows in electronic markets have been automated for some time now, but the processes for enabling clients have remained highly manual. “The adoption of automation standards by the industry will allow for the improvement of client service, controls and efficiency,” he explains. “This development is particularly timely given the increased regulatory demands on electronic trading infrastructure.”

As Sassan Danesh, managing partner at Etrading Software, points out one of those regulatory demands is the necessity to meet the CFTC rules about swaps trading on SEFs, as mandated by Dodd-Frank, so the TESI initiative is certainly timely. “This initiative will dramatically change the way banks and execution venues enable clients for electronic trading [in future],” adds Danesh. “The new protocol will allow dealers and electronic execution venues to provide their buy-side clients with a faster, higher quality enablement process.”

Over the coming days the working group will engage with leading SEFs and execution venues to participate in a collaborative process to create the standard, as well as liaise with other standards organisations in order to migrate the governance for the new specifications to the appropriate standards bodies as quickly as possible. Other banks and executive venues are actively being sought to join the initiative in order try to achieve critical mass and deliver a truly useful shared standard that every uses. Full participation will be necessary if it is to work.