NEX (Nex) Optimisation has launched an automated credit rebalancing tool that specifically addresses limit over-allocation by prime brokers.
Rebalancer went live across five major ECNs on 2 July 2017, with further platforms going live throughout the year.
Designed in close partnership with Citi, Rebalancer is designed to enable dynamic allocation of credit across client trading venues, allowing clients to move credit from one platform to another in real time.
Prime brokers currently allocate credit to multiple trading venues but do not have the ability to move it around if there is excess credit on one and a shortage on the other.
Rebalancer leverages existing ECN limit capabilities to dynamically allocate credit wherever the client trades, while considering the clients overall net position across all venues. If the client has offsetting positions, that is if they have directional positions on each platform but are flat overall, then Rebalancer automatically extends credit.
Once the net position is no longer flat, the rebalancing tool withdraws this credit. As a result, prime brokers can extensively reduce the amount of excess carve out at each ECN, capping exposure in the event of a negative event such as a technical issue or faulty algorithm.
Rebalancer will also allow for dynamic management of designation notice limits via connectivity to Nex Optimisation’s Traiana Designation Notice Manager service. Designation notices communicate the credit limits, permitted products, currencies and tenors a client can trade.
Designation Notice Manager allows for electronically negotiating, exchanging and monitoring designation notices between FX prime brokers and executing brokers.
“The development of Rebalancer is a very important milestone for the prime brokerage industry and we are very excited to see the product go live. This innovation will serve the needs of prime brokers as well as trading venues and clients, all of whom have an interest in enhancing risk management,” says Sanjay Madgavkar, global head of FX prime brokerage at Citi.
Joanna Davies, managing director at Traiana, adds: “This is a further example of Nex Optimisation leading the way in risk mitigation in the FX market. Recent volatile markets and exceptional events have led FX prime brokers to intensify their focus on risk management. By allowing dynamic reallocation, Rebalancer will give these prime brokers further comfort, leading to more credit availability in the market as a whole.”