SEB Futures is hoping to get an early adopter advantage by providing a new transparency into post-trade processing for its buy-side clients.
Clearing and execution broker SEB Futures is pushing for an early adopter advantage by providing more transparency into the post-trade processes for exchange-traded derivatives. The firm is hoping to boost service levels for its buy-side clients who are increasingly working with multiple brokers.
In fact, the broker is taking its cues from a client, a commodity trading advisor (CTA) and investment manager Informed Portfolio Management (IPM), based in Stockholm, Sweden. IPM officials urged SEB Futures to use the Harmony network from Traiana to provide post-trade processing support for listed derivatives; SEB Futures had already been using Traiana’s flagship services for FX transactions.
The network brings together banks, prime brokers, buy-side firms and technology partners in an effort to automate trade processing workflows, say Traiana officials. Its intent is to cut operational risk by helping participants see trade breaks among counterparties and correct them in real time. The network has offered support for exchange-traded derivatives since late 2010.
Those in the Traiana network “can see what the executing and clearing brokers, all the counterparties and the markets where the trading status is, after execution,” says Lawrence Peirson, the London-based Head of Sales and Relationship Management for SEB Futures; like IPM, SEB is headquartered in Stockholm. Working with Traiana, the broker can leverage its existing relationships with hedge funds and other users of the Traina network. “We’re using IPM as a test client and then we’re going to spread the love out to the rest of our client base.
The Harmony network, which has approximately 500 participants, shows where a trade is, when it was picked up, executed, confirmed, reconciled and allocated, Peirson says. “It’s kind of what the FCMs (futures commission merchants) do behind the scenes but it takes it one step forward for the client,” he say. Large CTAs such as IPM are coping with many counterparties trading in FX, equities, futures and bonds can see multiple products in real time via the network.
“Rather than sell the software and run away to the hills with our money, we continue the engagement by being part of the bank and being part of their integration and onboarding process.”
—Patrick Thornton-Smith, Global Head of Exchange Traded Derivatives for Traiana
“It helps our middle office internal flows. It really provides us with a jump in service levels for clients,” Peirson says.
The Traiana system can also be used to automate post-trade processes that are partially or completely manual. “Average pricing is a semi-manual process,” Pierson says. The Traiana system serves as “a middle office tool that allows participants to reconcile, allocate and split an average price out to all those counterparties that they deal with.”
SEB Futures and other brokers are seizing upon the buy side’s need to work with multiple brokers after the fall of Lehman Brothers drove home the risks inherent in working with a single broker, says Patrick Thornton-Smith, the London-based Global Head of Exchange-Traded Derivatives for Traiana. The problem for the buy side is that they have to now manage multiple brokers.
“If you’re somebody like IPM, you’ll be facing off against a number of brokers and to be able to have a standard platform to communicate like Harmony means there’s a one-stop shop for reaching out to their clearing brokers,” Thornton-Smith says. “It helps them enormously in real time being able to assess their risk across multiple counterparties rather than having to take one download each from UBS, Goldman Sachs, Credit Suisse, Citibank and so on.”
Traiana’s main Harmony network clients are sell-side clearing firms and prime brokers that then entice buy-side firms to join the network. “We do have a number of big, buy-side clients that are direct customers of ours because they wish to be far more in control,” Thornton-Smith says.
Harmony network member IPM specializes in research-based investing and has approximately $8 billion in assets under management (AUM). The firm serves major institutional investors such as sovereigns, pension funds, insurance companies and foundations.
“We’re using IPM as a test client and then we’re going to spread the love out to the rest of our client base.”
—Lawrence Peirson, Head of Sales and Relationship Management for SEB Futures
IPM is using the Traiana’s software and services because the vendor “presented a solution that will help us streamline our workflow,” says Maria Svensson, Director, Execution Management for IPM. The CTA intends to use the Traiana offerings for FX forwards, non-deliverable forwards (NDFs), FX swaps and futures, Svensson says. IPM is “putting the finishing touches on the integration for the FX flow,” she says. “After that, we’ll continue with the futures project, and we expect that to be done during the latter part of this year.”
IPM, SEB Futures and Traiana will be working together on the project.
“We’re just in the process of getting the project kicked off,” Pierson says. Traiana will offer onboarding services for the clients of SEB Futures.
“We basically wear the SEB hat to engage with the clients and set up their profile and their accounts,” Thornton-Smith says. “Rather than sell the software and run away to the hills with our money, we continue the engagement by being part of the bank and being part of their integration and onboarding process.”
SEB Futures also has no plans to head for the hills but is hoping its pioneering effort will have legs.
“By adopting it early, we feel we can have some market leader advantage in getting it out to a variety of hedge funds,” Peirson says. “You may see larger firms not taking it but developing something very similar. A lot of them say that they already have something like this but, really, I don’t think that many do.”
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