Lucera has built out a low latency pre-trade credit control tool that is fully integrated with its LumeFX stack, in a bid to help prime services providers detect and prevent credit limit breaches.
The solution, which is already live and being used by Lucera clients, enables prime service providers the ability to get real-time alerts when one of their clients is approaching their credit limit.
“We got feedback from our clients that some of the products that they were using for pre-trade credit checking were difficult to administer or difficult to understand because they didn’t always make it clear why these credit limits were being triggered. So we wanted to build a product that makes it easy for the people who are monitoring and administering these tools to know exactly what’s going on. That’s why we built an intuitive, Web-based UI that lets firms access all of the details that make up a client’s exposures very quickly,” says Peter Durkan, CEO of Lucera.
He adds: “Because it’s fully built into the LumeFX platform, whenever certain thresholds are breached it will automatically reach out to the LumeFX system and stop any further trading.”
Durkan says that some banks appear to be growing their FX prime brokerage (FXPB) businesses again after a couple of years of retrenchment and are looking for better pre-trade credit check tools.
“After SNB, I think that a lot of firms looked at their PB business and said that they need to make improvements if they want to continue it. This means that the technology part of these businesses has become more important, they need to see pre-trade credit and operate in real-time – post trade is no longer good enough,” he says.
During this period of FXPB retrenchment, many firms turned to prime-of-prime (PoP) providers, and Durkan says that Lucera’s pre-trade credit tool is also generating a lot of demand from these PoPs.
“It seems that the banks are starting to grow their FXPB businesses again, but they’re less willing to service the smaller clients now, which is where prime-of-primes can play a role. Now that the technology is there to allow for adequate risk controls, we’re seeing a lot of interest from the prime-of-primes,” he explains.
Looking at the prime services space more broadly, Durkan says that it wasn’t completely lacking in pre-trade risk controls, but that post-SNB there is definitely a requirement to have more stringent pre-trade credit checks in place.
“If you look at how technology has moved forward and how the speed and volume of FX trading has increased, then it becomes apparent how important it is to have proper pre-trade risk controls in place. Because if you don’t have these controls in place, you can get run-over pretty quickly,” he comments.
The next step in developing this pre-trade credit tool is to make it a standalone product, adds Durkan. He explains that some clients have legacy technology that they can’t necessarily move away from, but would still find value in this pre-trade tool. This is why Lucera plans to develop it as a standalone product, meaning that firms could use their own underlying technology that would essentially call out to the Lucera risk engine to determine whether that firm was allowed to place a trade.