Foreign Exchange (Forex or FX) industry launches initiative to reduce risks associated with algorithmic and high-frequency trading (HFT). Allows prime brokers to monitor trading activity and credit limits in real-time. Industry keen to act pre-emptively, to learn from May 2010 equity flash crash. Banks and currency trading platforms have joined forces to reduce the risk that computer model-driven high-frequency traders could spark a flash crash in the FX markets

Traiana (owned by ICAP) has partnered with leading FX prime brokers, Citi, Deutsche Bank, J.P. Morgan and Morgan Stanley, together with leading FX platforms, Bloomberg Tradebook, Currenex, EBS, FXCM , Hotspot FX and Thomson Reuters, to launch an industry-wide initiative to centrally monitor and manage foreign exchange (FX) ECN trading activity and trading limits globally. By connecting prime brokers and ECNs in real-time, the service will provide the FX industry with the control and real-time risk management capabilities to manage risks from algorithmic and high frequency trading. The launch of the new version of Harmony CreditLink culminates a comprehensive effort by all partners over many months, and is now live and available to all Harmony members.

The increase in high frequency trading (HFT) and algorithmic FX trading has made the provision of adequate controls and real-time risk capability critically important to prime brokers managing risk across clients trading on ECNs. Using Harmony CreditLink, prime brokers now have the ability to monitor their clients’ credit risk across multiple ECNs on a real-time basis, act on exceptions in a single integrated dashboard, and open, change or close credit lines to manage risk while maximizing clients’ trading ability. With real-time integration to ECN credit and post-trade APIs, Harmony will proactively notify the Prime Broker of limit breaches and allow the prime broker to modify credit lines or terminate trading activity with an integrated KillSwitch capability. By providing centralized, automated and secure ECN limit management, credit risk for all counterparties will be significantly reduced.

Andrew Coyne, Head of FX Prime & G10 eCommerce, Citi, said: “This collaborative industry initiative addresses a fundamental and immediate industry need – that of providing trading and limit management to prime brokers to enable them to monitor their clients’ credit risk in real-time. Initiated independently of any regulatory call for change, this new solution will fundamentally change the way the FX industry operates going forward.”

Jason Vitale, Global Head of FXPB, Deutsche Bank, said: “The FX industry is leading the way in terms of putting measures in place to significantly reduce risk throughout the post-trade process. Collectively, we have acted to put a solution in place that would provide the level of control and management we felt was necessary to reduce risk. Deutsche Bank is proud to be the first firm live on the new solution and a partner in such a significant evolution of the FX post-trade process.”

Andres Choussy, Global Head of FX Clearing, J.P. Morgan, said: “The cooperation between prime brokers, ECNs and Traiana demonstrates the continued and widespread support within the FX community to ensure proper risk management and control. J.P. Morgan is delighted to be a part of this initiative as we continue to re-design the FX post-trade landscape.”

Michael Irwin, Co-Head of FXPB, Morgan Stanley, said: “The increase in high frequency and algorithmic FX trading has made the provision of adequate control and real-time risk management of critical importance. This collaborative industry partnership marks one of the many ways that major FX prime brokers, ECNs and Traiana are taking the lead to provide high quality risk control, and better client service to the industry.”

Gil Mandelzis, CEO, Traiana, said “Traiana remains committed to innovating across market segments and asset classes to ensure all market participants have the post- trade credit risk solutions they need. We’re honoured to play an instrumental role for the FX community in this initiative, and look forward to expanding central credit risk capabilities to new asset classes.”

Ref : http://www.traiana.com/news/pressreleases/fullstory/?id=70