Capitolis unveils FX novation service

Citi, HSBC, BlueCrest and Brevan Howard, among other market participants, have collaborated with Capitolis on this service.

Novation it is a defined legal term that refers to the practice of replacing an existing counterparty in an existing trade with a new counterparty. The practice is commonplace in interest rates trading but is not within FX. In FX there exists a protocol defined by the International Securities and Derivatives Association (ISDA) that parties “can choose to follow, which is however, not mandatory”.

No specifics on that functionality and the solution is currently being tested.

Capitolis Novation automates the currently manual workflow in both FX prime broking and bilateral trading.

The service helps “mitigate against costs and inefficiencies linked to the manual process of novation that banks currently employ to meet their regulatory capital requirements as well as managing client credit capacity”.

With this service, Capitolis says it automates the novation process for all market participants, including prime brokers, executing banks, hedge funds and real money managers, for all FX instruments including options, swaps, forwards and non-deliverable forwards (NDFs).