RiskTech Forum

FTEN RX Installed at BofA Merrill Lynch in Response to ESMA Risk Requirements

Posted: 21 September 2012  |  Source: Bank of America Merrill Lynch


European regulatory guidelines requiring general clearing members to improve post-trade risk management controls.

BofA Merrill Lynch has implemented FTEN’s RiskXposure (RX) platform in its European cash equities clearing business in response to these new guidelines.

 

The RX solution from FTEN, acquired by Nasdaq OMX last year, gives BofA Merrill Lynch a comprehensive post-trade risk management infrastructure that integrates client positions and executed trade data from central counterparty clearing houses (CCPs) and exchanges, and aggregates the data to provide real-time market and credit risk exposure on a per-market, per-CCP or per-client basis

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The RX platform has been used in US clearing houses since FTEN’s technology came to market in 2004, but this is the first time it has been used to manage and reduce intra-day risk exposure in a similar environment in Europe.

Gary LaFever, chief corporate development officer at FTEN, says: “Initially, in the US, trading firms liked RX for its speed, but the true value of the technology is its ability to aggregate cross-market asset data and deliver risk management solutions that provide market participants with transparency and control over their global trading activity.”

He explains the debut of the FTEN RX platform in Europe, saying: “We started talking to BofA Merrill Lynch last year and then convened a meeting of CCPs, exchanges, multilateral trading facilities and others to discuss the European Securities and Markets Authority’s (ESMA) guidelines on automated trading. A key requirement of the guidelines is that general clearing members should have real-time, cross-market awareness and control of risk. This is what RX can provide.”

FTEN RX technology collects data from siloed sources such as internal and third-party order management systems, CCPs, exchanges and multilateral trading facilities. FTEN then provides data aggregation, data normalisation in real time, analysis of the risk data on an intraday basis, and alert and action functionality that allows the user to set parameters for alerts, monitor any alerts and take manual action or trigger automatic action if it is necessary to stop or change parameters around potentially damaging transactions.

Tim Myerson, global head of access services at Nasdaq OMX and previously CEO of FTEN, sums up the solution, saying: “RX brings general clearing members’ risk management capabilities closer to the point of trade, giving them deeper insight and tighter control over their end clients’ activity to safely and effectively manage their business.”

BofA Merrill Lynch has deployed RX and is in preliminary operation as it adds additional sources of data for a fuller view of post-trade activity. The software augments the bank’s existing systems and the bank will use its own proprietary technology to take action on any alerts arising from RX.

LaFever says that while RX is likely to be used predominantly for risk management, it does offer other value propositions, such as client management that requires the aggregation and analysis of data, but not specifically risk data, in real time.