360T plans OTC clearing for FX as it aims for hybrid model

Over-the-counter clearing in foreign exchange is a big deal: it could provide an alternative to prime brokerage, potentially allow non-bank market-makers to access all segments of the market, make trading cheaper for end-clients due to portfolio efficiencies, and it could be a step towards proving best execution.

360T, the trading venue acquired by Deutsche Borse last year for €725 million, is planning to deliver just that, in the first example of vertical integration that exchanges buying into the OTC FX market are looking to do.

The platform has been voted the winner of the Best Professional e-Trading Venue category for the second year running at the 2016 FX Week Best Banks Awards.

"The FX market needs to evolve into a truly hybrid model, where OTC and exchange trading, and bilateral and CCP settlement live alongside each other, so true best execution that considers individual requirements and the portfolio effect of the trade can be considered and managed. This is what we are looking at," says Carlo Kolzer, group chief executive of 360T and global head of FX at Deutsche Borse Group.

Participants should be able to choose the right execution venue, the right execution style, the right product, and the right post-trade clearing and settlement infrastructure
Carlo Kolzer, 360T and Deutsche Boerse Group

The objective is to maximise efficiency across the entire value chain, so 360T clients gain a single gateway to a market that is increasingly regulated and highly credit-dependent, while also achieving scale and transparency. In a bid to create a hybrid model for FX, the platform is expected to launch a central limit order book (Clob) in 2017, with OTC clearing arriving about a year later.

"The FX market has multiple types of participants with multiple reasons to transact. One size cannot fit all for this, so all participants should be able to choose the right execution venue, the right execution style, the right product, and the right post-trade clearing and settlement infrastructure for the trade they need to do," Kolzer adds.

The institutional real-money sector is high on the agenda for 360T, as Kolzer expects growth from the segment due to increasing transparency needs around execution, as well as mounting cost pressures filtering through to the buy side.

"[Regulation] asks for transparency, documentation, audit trail, trade repositories, etc. We are exactly working along those lines. Furthermore, regulation leads to higher costs and it requires certain scale to cope with it. We have that scale and can therefore invest in the requirements," Kolzer says.

"Therefore, we see it as positive for the markets and ourselves. Yes, it influences how we operate and the product offering, like the swap execution facility, clearing, Clob, etc, but it creates opportunities," he adds.

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