Capitolis to go live with FX novation service

Gil Mandelzis-led technology firm Capitolis is testing a novation service for foreign exchange markets in collaboration with four currency market heavyweights including BlueCrest, Brevan Howard, Citi and HSBC, which it plans to launch in the next few weeks.

“Over the past few months we’ve been working with major market participants on developing an industry solution for novations. We are grateful to the strong support our solution has received from prime brokers, executing banks and leading buy side firms,” says chief executive Mandelzis.

Capitolis was founded by Mandelzis, who was previously the chief executive of EBS, together with ex-Thomson Reuters chief Tom Glocer and Igor Teleshevsky, formerly of Traiana.

“We are looking forward to going live with the solution in the next few weeks and will roll out significant further functionality throughout this year,” Mandelzis adds.

Novation is the practice of replacing an existing counterparty in a trade with a new one. The party stepping out of an existing trade can be replaced by another market participant stepping in to take the position on to their books.

The process of novation has been a highly manual process in both foreign exchange prime broking and bilateral trading. The new Capitolis novation service automates this workflow to provide capital efficiencies and to help reduce costs associated with the process of meeting regulatory capital requirements as well as managing client credit capacity.

The service extends to all instruments including options, swaps, forwards and non-deliverable forwards and it will be available for all market participants including prime brokers, executing banks, hedge funds and real money managers.

“Capitolis is focused on innovative ideas which will help prime brokers and their clients. We are delighted to be engaged in new and creative products to help the prime brokerage industry move forward in the right direction,” says Sanjay Madgavkar, global head of FX prime brokerage at Citi.

We support the efforts of Capitolis in improving standards of practice in the FX novation market

Bevan Kaminer, Brevan Howard

“The Capitolis option novation solution is a positive step forward in terms of bringing a level of standardisation and efficiency to a traditionally operationally intensive process. They have been swift in designing a collaborative tool which will ultimately benefit the whole FXPB ecosystem,” adds Paul Lawrence, operations manager at BlueCrest.

In March this year, the company announced that it had secured funding from Sequoia Capital and Index Ventures in a seed and Series A round in which it raised $29 million.

A month later in April, Capitolis launched a so-called credit-switching service for foreign exchange, which aims to address a key issue in credit provision and achieve the separation of execution and processing.

Capitolis Switch capitalises on the idea that, while prime brokers have specialist and unique processing and infrastructure capabilities, there are many more companies on both the sell and buy side that have excess credit to extend.

The broader universe of credit providers allows PBs to maximise their infrastructure capability while credit providers can access a wider network of counterparties.

“We support the efforts of Capitolis in improving standards of practice in the FX novation market, notably in terms of the efficiency savings this can bring to buy-side firms, and look forward to our continued collaboration,” says Bevan Kaminer, chief operating officer at Brevan Howard.

Vincent Bonamy, head of global intermediary services at HSBC, adds that the partnership opens a new way to increase the quality and efficiency of the bank’s offerings both in terms of transparency and automation.

“Our key focus as a leading FX house is to provide the best level of client service possible,” Bonamy says.