New DealHub Netting Solution Complies with CLS Rules

8 September 2008

Option Computers Ltd (OCL), the leading provider of STP solutions in the Foreign Exchange market has developed a fully functional matching and netting module that not only addresses the high ticket volume issue, whilst remaining fully compliant with CLS rules regarding the pre-netting of trades, but also offers the potential to reduce messaging costs.

Peter Kriskinans, MD, commented "The problem of ever - increasing volumes continually testing the constraints of existing infrastructure and systems has NOT gone away; you have only to follow recent announcements of record volumes to know it remains and is getting more critical. DealHub is uniquely positioned in the trade flow of many of the largest FX banks through its existing connectivity and position in the processing cycle and can take trades directly from every FX source.

It is a proven solution that is ultra reliable, is consistent, is built for high volume, and avoids the creation of any additional latency during netting. By safe storing the trades at the bank prior to any matching and netting processes, DealHub guarantees that no issues are created such as trades appearing in netting platforms prior to being booked in the bank's position and risk system by only aggregating matched deals.”

Kriskinans added “Nobody is keen to create additional risk by storing and processing data in a central location, for this reason we have adopted the peer-to-peer approach which enables the participants to maintain full control over their data and software. There is no risk of the bank’s data being compromised, no risk of software issues being introduced by a centralised software model, and we avoid any issue of being seen as an additional point of failure or risk in the market".

DealHub’s unique industry wide solution* allows participants to immediately address the issue of stress on internal infrastructures while continuing to abide by the CLS requirement of sending only gross (non pre-netted) trades for settlement.

This module protects the bank’s downstream systems from increasing ticket volumes, volume spikes on heavy trading days and extends the lifetime of the existing infrastructure investment. By removing the requirement to re-develop complex back office systems or to invest in additional hardware/memory upgrades, the potential cost savings are very substantial.

DealHub provides a highly configurable volume processing solution that enables banks to pre-match and aggregate trades, and to define the timing of flows of component and aggregate trades to risk and back office systems, according to the source business area. The netting module can be implemented on a bilateral basis, a unilateral basis and/or an intra-company basis. Trades are always pre-matched prior to aggregation and before being sent to the participant’s downstream system. In a unilateral mode the implementation relies on the CLS match in order to pre-match but in a bilateral mode both parties receive a match status prior even to submission to CLS. Intra-company netting dramatically reduces the huge volumes that large participants process internally. Other functionality allows the bank to prioritize flows such as inter-bank trades so that the large items always get processed first, especially when spikes in volume occur. Lower risk trades can be held and sent down when the downstream systems are less busy.

DealHub's netting solution has been proven using real data provided by top tier banks and it achieved compression rates of around 85% for large volume currency pairs and counterparties. The system is currently deployed at two high volume clients, each with their own unique netting requirements. Both sets of requirements are being satisfied by the single configurable solution provided by DealHub.

DealHub has successfully tested its connectivity to CLS and this is the first time that trades have been submitted to CLS prior to front and back-office processing.

DealHub are experts in STP and integration and provide a complete end to end solution that will be fully integrated with the banks downstream systems to ensure workflow, reconciliation and audit points are all fully addressed.

* patent pending #12/175,782

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