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
