Capitolis signs data deal with CLS

FX optimisation service to use settlement utility’s data to help boost efficiency


Foreign exchange optimisation service Capitolis has signed a deal with CLS to use the settlement utility’s data to boost the efficiency of its FX derivatives compression and novation activities.

Capitolis is a peer-to-peer platform that allows participants, including those from the buy and sell side, to tear up offsetting trades via compression runs and novate bilateral positions among themselves to better manage credit capacity and reduce bank capital requirements.

Until now, Capitolis was getting data independently from the banks. This presented its own challenges since the data had to be pulled from various places within the organisations. It also made it difficult for two banks to identify the exact trade they want to move or collapse. But the CLS tie-up means they can use the settlement utility’s trade identification numbers, making the process more efficient.

“By having access to the CLS ID, both sides can easily identify ‘this is the trade that I’m going to touch’. That makes it much easier to execute,” says Gil Mandelzis, chief executive and founder of Capitolis. “By virtue of this partnership, our solutions can scale in a much more meaningful fashion both within a client or within a pair of clients, but also grow the number of participants.”

CLS processes an average of 500,000 currency trades daily valued at more than $1.55 trillion, making it the single largest source of FX executed trade data available to the market. This expanded data set also allows participants to spot more compression and optimisation opportunities.

The collaboration also puts Capitolis on equal footing with firms such as Capitalab and TriOptima, which are already using CLS data to boost their FX optimisation services.

“Now what we’re saying is: ‘let the best machine win’,” says Mandelzis. “We’re excited about our machine and our business model, our community and our approach.”

Gil Mandelzis
Gil Mandelzis

Capitolis launched in 2018 and covers all FX instruments including options, swaps, forwards and non-deliverable forwards. It includes dealers such as Citi, Deutsche Bank and HSBC, and buy-side names like BlueCrest and Brevan Howard. The service automates novations of prime-brokered and bilateral trades to optimise credit limit consumption, and also identifies offsetting trades that can be torn up to reduce line items and bank capital use.

“When it comes to the world of FX, there is massive amounts of waste because the result of sitting on a trade that you don’t have to sit on, or a position that you don’t have to sit on, is that there’s real costs associated with that. You have to reserve real capital that costs you real money,” Mandelzis says.

Mandelzis says Capitolis is looking to introduce three new solutions this year on the back of the CLS tie-up, but he is coy on the details.

The announcement is the latest in a flurry of news in the compression and optimisation space. On January 14, Quantile announced a $51 million investment from institutional investor Spectrum Equity, which took an undisclosed minority stake in the company.

On January 12, CME and IHS Markit announced a joint venture that will combine their respective trade processing and risk mitigation operations. The new company will incorporate CME Group’s optimization businesses – Traiana, TriOptima, and Reset – and IHS Markit’s MarkitServ.  

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