Basu, OSTTRA brings together four businesses that have been at the heart of post trade evolution and innovation for more than 25 years: Please can you give us a little background on who they are.
OSTTRA was formed in 2021, bringing together CME Group’s optimisation businesses –Traiana, TriOptima, and Reset – and IHS Markit’s MarkitServ. The aim was to create a leading provider of post-trade solutions for the global OTC and exchange-traded derivative markets across interest rate, FX, equity, credit and commodity asset classes.
How does OSTTRA strengthen post-trade infrastructures and ecosystems and what range of FX solutions does it provide?
OSTTRA is central to helping financial institutions solve some of their core business challenges by connecting thousands of counterparties worldwide. We process millions of trades every day by connecting to all primary and secondary liquidity pools (ECNs, eFX, IDB, Voice). Firms leverage our ecosystem to process notice of executions, match, confirm and allocate FX trades to give all parties T+0 certainty on trade economics. Additionally, we provide services critical to optimisation and reconciliation of FX portfolios, through compression, rebalancing, basis risk mitigation, margin and portfolio services. We now enable firms to mitigate their bilateral FX settlement risk through our PvP settlement orchestration service.What types of clients are looking to OSTTRA to help them manage the post-trade challenges of the highly diverse and fragmented FX market?
OSTTRA links over 2000 participants to the ecosystem of FX venues (ECN, eFX, SEF, MFT, voice) to provide end to end workflows for the world’s top 50 executing banks, all of the largest prime brokers, FCMs and their thousands of hedge fund and investment management clients.
Earlier this year OSTTRA launched an FX PvP settlement orchestration service designed to mitigate bilateral settlement risk between participants. What was the motivation for doing that?
For OSTTRA, there were two key motivations. The service will provide our customers with efficient ways to mitigate, manage, monitor and control the approximately $2.2T FX deliverable activity that today settles without any risk controls.
Additionally, the construct of Distributed data, shared workflow and peer-to-peer interactions orchestrated by a trusted administrator aligns with our long-term vision of the future digital ecosystem of post-trade wholesale financial markets.
Please tell us about the focus of this new PvP service and the key benefits it will deliver.
The focus on day one is to onboard large FX dealer banks onto the network. We anticipate that the service will provide benefits for flows that cannot today be managed through PvP models.
This would include offshore emerging markets currencies along with short-dated transactions on G10 currencies, or currencies where firms have liquidity challenges.
Once this network of firms and flows has been established, we will look to expand with PB/fund admin/custodian workflows and their associated hedge fund or investment manager customers. In doing so, firms will be able to address the large settlement and liquidity risks that exist today for D2C flows.
How will the service be delivered?
The service will be hosted, managed and operated by OSTTRA, and powered by Baton Systems’ CoreFX technology. Clients will participate in the ecosystem through our cloud-based SaaS offering, while OSTTRA’s rulebook and contractual framework will provide firms with the legal certainty and the necessary operational and technical support to facilitate their efficient participation.
Osttra by the numbers
Osttra builds and manages the post-trade workflows that financial institutions across the Capital Markets rely on to process and reconcile their trades, manage exceptions and enable timely settlement for all OTC and exchange-traded derivative markets.
How important is this launch in the evolution of your own FX network and in what ways could it mark a significant milestone in increasing market wide access to PvP, helping to address FX settlement risk concerns?
The launch will enable all participants to benefit from end-to-end automation and full visibility of their FX transactions and settlements. We will achieve this by linking point of execution into T+0 post-trade matching and allocations, which allows for a single source of truth. The associated daily lifecycle processing, including pre-settlement matching, netting, payment shaping, settled-to-market (STM), and final PvP settlement can all be linked efficiently back to the original execution and optimisation activity.
What plans do you have for developing the new PvP service still further?
Our initial focus is to enable FX settlement risk mitigation services and grow the ecosystem to encompass D2C end-to-end flows. Over time, the intention is to extend the service, initially to provide balance sheet relief (continuous compression, STM model) and then to create enhanced liquidity optimisation solutions (data driven ML / AI) and provide cross asset efficiencies (netting / STM) while expanding the ecosystem to bridge with new digital end points (Wallets, Synthetic CBDC, Custodian chains or digital ecosystems).
How much scope is there for achieving even greater post-trade efficiencies across OTC asset classes and what opportunities will this present for OSTTRA to play a central role in delivering them?
The PvP service is the first enabler of achieving both the cross-asset settlement netting and balance sheet-efficient STM construct, where trapped collateral can be effectively linked and released, contingent on settlement (PvP, IRD resets, Equity Swap, Dividends, Bond Coupons etc.). While some may view this as the holy grail, with OSTTRA’s existing OTC networks, optimisation capabilities and pedigree in operating robust, safe, and secure ecosystems, we see this as an achievable end state for the wholesale financial markets.