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Transforming Market Structures as a Recognised Market Operator (RMO) for OTC Derivatives
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Transforming Market Structures as a Recognised Market Operator (RMO) for OTC Derivatives

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  • 1. Transforming Market Structures as a Recognised MarketOperator (RMO) for OTC Derivatives Strictly Private and Confidential 1
  • 2. THE STORY SO FAR…Current Industry ScenarioThe Industry ChallengeCleartrade Exchange – Benefits for stakeholders Strictly Private and Confidential 2
  • 3. Regulatory Reform Opportunity for change OTC instruments are subject to global regulatory reform. Demand Curve of Regulation By late 2012 institutional & retail traders and brokers under the Wall Street & Consumer Protection Act Regulation Wall Street & $600 Trillion Consumer Protection Act (Dodd Frank) will be required (Dodd Frank) Derivatives Market to execute trades via regulated swap execution SEF Rules definition facilities (SEF’s). CFTC Globally, regulators are Mfid Review What size market can tightening rules and we expect to see ? emulating the Dodd Frank Act. Dodd Frank Act July 2011 2011 2012 2013 TimeWall Street Reform and Consumer Protection (Dodd–Frank) Act lays the foundation defining a SEF as a “facility, trading system or platform inwhich multiple participants have the ability to execute or trade swaps by accepting bids and offers made by other participants that are open to multiple participants in the facility or system”. Strictly Private and Confidential 3 Cleartrade Exchange comfortably satisfies this definition
  • 4. Summary of SEF PrinciplesEveryone will want to be a SEF ! But what is it ?These are the core principles to which a SEF must adhere are: Compliant (1) Complying with the CEA and the CFTC rules, (2) Enforcing trade processes for market participants that will deter abuses, ensure impartial access to markets and capture information on rule violations, (3) Preventing swaps from being readily susceptible to manipulation, (4) Monitoring trading to prevent manipulation, price distortion and disruptions of the delivery or cash settlement processes, (5) Establishing rules to obtain information to provide to the CFTC, (6) Establishing position limitations and accountability to prevent market manipulation or congestion, (7) Establishing mechanisms for ensuring financial integrity of swaps, (8) Establishing an emergency procedure to liquidate or transfer open positions in a swap or suspend trading on the swap, (9) Publishing trading information such as public information on price, trading volume and other data, (10) Maintaining records of activities, including a “complete audit trail” for a five year period (11) Not unreasonably restraining trade, (12) Establishing rules for minimizing and resolving conflicts of interest, (13) Providing adequate financial resources, (14) Establishing system safeguards and (15) Assigning a chief compliance officer who reviews compliance with core principles & CFTC rules. Strictly Private and Confidential 4
  • 5. The industry challenge … bridging the “gap”*Freight / Ferrous Metals Complex of Derivatives Strictly Private and Confidential 5
  • 6. Introducing The Cleartrade ExchangeCleartrade Exchange provides seamless transaction flow of OTC derivativesfrom electronic execution, through to GCM via Credit Filter to clearing house(s),and back. Strictly Private and Confidential 6
  • 7. The Cleartrade Exchange (CLTX) - Introduction• Centralised, transparent & anonymous electronic market• Regulated by Monetary Authority of Singapore (MAS) as an RMO• Leading technology and operational infrastructure with an open API• Venue for OTC cleared derivatives – Launched with Dry FFAs, Iron Ore, Steel and Fertilizer swaps – Will launch Container derivatives in Q4’11 – Established two Spot Indices for the development and settlement of swaps markets. ( Cleartrade China Steel Index, World Container Index assessed by Drewry)• Supports many-to-many participants trading styles• Easy to deploy web based screen interface• No screen costs, software, set up costs or membership fees, transaction fee based• Multiple clearing house connections ( LCH, NOS, SGX, CME) Cleartrade Exchange Timeline 2009 2010 2011 Over Market Study (FEB) Cleartrade Exchange 160,000 LOTS Incorporation in Singapore 1st IDB RMO License Processed Regulated Market Technology Credit Filter Member 3 Product Design & Build & Clearing House Onboarding Families 7
  • 8. The Cleartrade EDGE Platformthe infrastructure of a regulated marketplace EDGE Execution Platform Principals Orders, Routing, RFQ’s, & Trade Link to Broker Trade Hub Management, Credit Matrix, Trade / recap Web interface Quote Vendor GCM’s Recap Engine Management (Trade & Feeds Rules & algorithms Systems Recap reports) LCH 3rd Party Cleartrade Trading Screens Clearing Operations HUB API TRADE HUB EDGE API EDGE NOS Execution : Pre & Post Trade Post Trade Reporting and Management Processing : Marketplace management, trading rules and algorithms FIX5.0 GCM STP Gateway Cleartrade Mobile Credit SGXPrice & Trade Discovery Matrix Cleartrade Credit Matrix for GCM’s CME Set financial margins by account import positions, Net P&L risk view Cleartrade Screens Broker – Trade - GCM Execution to Clearing : PriceStrictly Private andTrade Reporting : Risk Management Discovery : Confidential 8
  • 9. Fully integrated exchange solutionThe Cleartrade EDGE platformconsists of 5 key elements:1. Electronic execution screen Recap manager / web2. Block trading / deal registration and sw appl. Version + RM3. Link via credit filter to clearing module houses for pre-approval of trades API access for4. Consolidated recap manager third party and risk management system trading system (Trayport,5. Market supervision and Elysian etc) operations team (17hrs p/day) Cleartrade Exchange provides the “plumbing between execution and clearing” Clearing House Strictly Private and Confidential 9
  • 10. How we translate the rules…Screen Familiarization Trades Window Transparency WindowQuick Trade / Order Entry User Definable Contract Layouts
  • 11. Trading ScenariosGlobal access for all members andto all relevant commodities … INITIATOR AGGRESSOR Principal Principal Principal Broker Principal Principal Principal Broker Principal Principal Principal Broker Broker Principal Principal Principal Principal Broker (Block Trade) Principal Principal Principal 11
  • 12. Benefits of partnering with Cleartrade Exchange Broker Principal Participating brokers do not share prices and do not co-broker Easy to access open market prices -Trade direct for regular trades “Use Cleartrade as internal white board” Cleartrade fee structure does not undercut brokerage commissions Trade via a broker for more complex tailored orders - Retain and does not add significantly to the cost of transactions relationship Brokers can route orders securely to traders “Legging” functions gives better view of available spreads and ratios All open screen prices are shown anonymously to all participants Bespoke contract functions for time strips / calendar stripsBlock trading of pre-matched trades (dark trades) are available to OTC MTF risk management function allows full visibility of positions and P+L brokers Cut your back office costs and let Cleartrade take care of Automated recap system and downloadable reports integrates with confirmations, clearing registration and recording your accounting systemsMulti product platform enables cross selling of prices to relationship Private and Confidential trades allowed in block trading system (very clients dark trades)Positions you in a positive light with clients by participating in a level Better closing prices and forward curves playing field Strictly Private and Confidential 15
  • 13. The story continues…• Cleartrade Exchange is at the heart of the OTC market transformation.• Multiple products listed and trading (Dry FFA, Iron Ore, Steel, Fertilizers) and connected to multiple clearing houses.• Monitoring closely the regulatory frameworks and will adjust the business model, rulebook with MAS, as further OTC regulation gets defined• Remain focused on working with the market, this is a critical pivot point and open dialogue with all partners is essential – we work within an complex eco-system of dependencies• We have the experience of working with the market over the last two years on the sensitive issues – this is a journey not a destination Cleartrade Exchange meets to needs of a Swap ExecutionFacility and will register accordingly to address the US market. Strictly Private and Confidential 16
  • 14. THANK YOUContact :Richard Baker,Chief Executive OfficerEmail : rbaker@thecleartrade.comPS. Please stop raining !Come on Andy Murray in the US Open… Strictly Private and Confidential 17