Omgeo and EuroCCP Target Counterparty Risk on Buy-Side
Counterparty risk is still a looming issue for the buy-side in Europe. Last week, Omgeo announced an initiative with EuroCCP, to develop a Pan European central counterparty (CCP) service for hedge fund transactions.
I chatted with Leigh Walters, executive director and global head of sales and head of Europe, Middle East and Africa (EMEA), based in London for Omgeo to learn more about the service, which affects hedge funds that execute trade through prime brokers and executing brokers.
"What we're trying to do is bring the benefits of CCP, which is to bring the counterparty risk mitigation and the benefits of netting transactions to the buy-side in Europe," explained Walters. While this already exists for brokers on exchanges, it doesn’t exist for the buy-side. "Every trade is done on an underlying hedge fund is settled on a one-for-one basis," said Walter. There is counterparty risk for hedge funds throughout the settlement cycle, until the trade settles on T+3.
Big name brokers suggested the idea to Omgeo, which is a joint venture half owned by Thomson Reuters and the Depository Trust and Clearing Corporation (DTCC).
About 18 months ago, a group of the largest brokers approached Omgeo about dealing with the pain point -- manual processing of transactions between prime brokers and executing brokers. This already exists in the U.S. in terms of the way that hedge fund trades are processed through DTCC, which links into NSCC, which is the US clearing entity and CCP. But apparently this doesn’t exist in Europe.
Since Omgeo already has dominant position among hedge funds, executing brokers and prime brokers, using Omgeo Central Trade Manager (CTM)to exchange post-trade details and confirmations, all the data is flowing on its networks. "It's not a fundamental shift from what we're doing today," said Walters. Since they are in the same family, Omgeo teamed up with EuroCCP, the European subsidiary of DTCC, that services Turquoise and many other multilateral trading facilities under MiFID.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
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