Quantile develops Optimised Backloading service which enables FX Smart Clearing at LCH ForexClear, reducing capital requirements under SA-CCR

Quantile, a leading provider of portfolio optimisation services, today announced it has developed the market’s first optimised backloading service which will reduce financial resource requirements. Once FX Smart Clearing has been launched by LCH ForexClear, Quantile’s optimised backloading service will allow participants to move FX Forwards and FX Swaps into LCH ForexClear in order to reduce margin and capital requirements.

FX Smart Clearing is being developed in response to the standardised approach to measuring counterparty credit risk (SA‑CCR), which has significantly increased capital requirements for banks trading FX derivatives. Due to the higher counterparty risk weighting, uncleared FX has a large capital requirement of 20-100%. By moving FX Forwards and FX Swaps into LCH ForexClear, the capital requirement materially reduces to 2%. Clearing also enables participants to benefit from greater multilateral netting, and trades are treated as settled to market (STM) which further reduces SA-CCR exposure.

A recent Proof of Concept (PoC) with LCH ForexClear generated a compelling case for Quantile’s optimised backloading service and FX Smart Clearing, with 10 participating banks achieving an average reduction in capital requirements of 38% (10 entities) and 50% (21 entities).

Once live, the service will follow Quantile’s established optimisation process. Participants would choose their optimisation objectives and constraints, and Quantile’s advanced algorithms would select which trades to backload while also generating new risk overlay trades which reduce financial resource requirements. The resulting FX Forwards portfolio would then be submitted to LCH ForexClear to clear on behalf of its members.

Esben Urbak, Head of Product, Quantile, said, “We are pleased to have pioneered optimised backloading at LCH ForexClear, and would like to thank our clients for their participation and support in delivering the first PoC run. The service has great potential to materially reduce capital requirements without increasing margin costs and we’re proud to have been at the forefront of this innovation. Over and above the obvious benefits of clearing, additional capital reduction can be generated once the trades are all facing a single CCP counterparty – our PoC proved that additional benefits can be easily achieved beyond the bilateral space.”

Andrew Batchelor, COO and Head of Product, LCH ForexClear, said, “We are delighted to see Quantile deliver the market’s first optimised backloading service to enable FX Smart Clearing. LCH ForexClear is a very efficient place to hold risk, and Quantile’s optimisation service will significantly reduce capital and funding requirements under SA-CCR. We look forward to seeing the service go live so members can benefit from the strong network, improved capital efficiency and deliver further optimisation benefits from facing a CCP.”

About Quantile

Quantile is a market-leading optimisation provider that reduces counterparty risk, notional and capital requirements to increase the efficiency and liquidity of derivatives markets, improve returns for clients, and make the financial system safer.

Since launching its first services in 2017, Quantile has eliminated trillions of dollars of gross notional through interest rate compression and billions of dollars in initial margin through counterparty risk optimisation.

Quantile’s clients, including all the top tier global banks, regional banks, buy-side firms and other large institutional market participants, are serviced from offices in London, New York, Amsterdam and Sydney.

Quantile is an LSEG Business within the Post Trade division.

www.quantile.com