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Introducing FX Smart Clearing by Quantile & LCH ForexClear

Quantile & LCH ForexClear have delivered the market’s first FX Smart Clearing service. Intelligently clear risk and achieve capital reductions of 50%+.

Smart Clearing enables participants to selectively clear FX Forwards via LCH ForexClear to significantly reduce capital requirements and counterparty risk.

It works by intelligently selecting existing uncleared trades to move to LCH ForexClear, and optimising portfolios with new rebalancing trades to reduce counterparty risk and the financial resources a participant must hold. The optimisation can be fully customised, enabling participants to control their risk and resource changes, as well as their preferred currency pairs and trading partners. Portfolios can also be potentially compressed to significantly reduce trade count and notional.

FX Smart Clearing was developed in response to customer demand for solutions which simultaneously manage counterparty risk, initial margin (IM) and capital. The introduction of SA-CCR has increased capital requirements for FX which creates a new incentive to clear, assuming the differences in cleared and uncleared IM are appropriately managed.

By moving FX Forwards into LCH ForexClear, participants benefit from multilateral netting, lower counterparty risk weights and settled to market (STM) treatment – all of which reduce capital requirements and counterparty risk. Quantile’s optimisation then ensures the risk reduction is achieved within the relevant IM and risk constraints.

Benefits of Smart Clearing

Reduce capital requirements under SA-CCR Hold risk more efficiently Access multilateral netting Unlock additional optimisation opportunities Trades are treated as settled to market (STM) Reduce risk within IM constraints

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Quantile and LCH ForexClear will be offering regular FX Smart Clearing runs from early 2024 for FX Forwards, with other cleared products to follow.

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