OTC FX Clearing Strategy & Business Case

A prominent European bank with global interests and a large presence in emerging markets needed to urgently assess the impact of regulatory reform, and in particular clearing, on its OTC FX business. Brickendon was engaged to make a business case supporting a recommended strategy.

The Challenges

• Formulate a strategy to meet the client’s anticipated regulatory obligations whilst also protecting its existing operations in the FX marketplace
• Prepare the client for the upcoming inclusion of Foreign Exchange in the mandatory clearing guidelines. (It is generally believed that NDF trades in emerging-market currencies will be the first such trades to be addressed.)
• Anticipate the future impact of client clearing as well as the more immediate house business
• Make a justifiable business case for the choice of central counterparty (CCP) and middleware providers
• Align new goals with earlier initiatives for rates and credit, whilst respecting the specific requirements of FX
• Coordinate input from a range of departments across the bank, from front office, through collateral management and technology, to finance, legal and settlement

The Brickendon Solution

• Devise and produce a strategy and supporting business case of how best to implement the FX clearing requirements using Brickendon’s intimate knowledge of the clearing house and connectivity
• Methodically analyse the volumes and revenue streams of the client’s business, specifically identifying the impact on capital and collateral required for clearing
• Conduct extensive interviews and workshops with all of the supporting services and systems to ensure the final business case and implementation fully encompasses the impact across the organisation
• Carry out analysis and organise workshops for interested parties across all of the bank’s departments, ensuring the final design is comprehensive and provides an accurate assessment of the business case
• Outline the differences in cost between clearing via direct clearing house membership and clearing through an existing clearing member
• Assign staff with specific FX clearing knowledge
• Foster a collaborative approach throughout the project, proactively including key stakeholder groups across the client’s business, promoting a highly visible and transparent level of communication

Client Benefits

• The client gained a clearing strategy that incorporated a future-proof design, conforming with the latest regulatory requirements
• The implementation strategy was tailored to the organisation ensuring efficient use of existing systems and resources
• The FX clearing initiative was dovetailed to the Rates and Credit initiatives again ensuring reuse of previous investments
• By developing a full business case before commissioning the project, the client was able to budget accurately and confidently
• Able to identify and monitor future customer flow and use this information intelligently to build better customer activity profiles
• Greater tactical planning and future Management Information System (MIS) strategy
• Potential to roll out the platform to the international customer-base, spanning EMEA, the US and Asia
• Increased levels of risk transparency, reporting metrics and customer visibility
• Project design aligned with future strategic direction
• Uplift in revenue stream

Key Success Factors

• Highly experienced staff with specific subject matter expertise in clearing
• Proactive stakeholder engagement
• Brickendon’s research into regulatory reform ensured the design adhered to the latest guidelines
• Extensive industry knowledge of competitor’s strategies
• Timely production of a target operating model, including a design and implementation roadmap with system impacts and nominated resources