Traiana?s new CEO is not new to the company, having been the firm?s first customer, instrumental in the
development of its first FX matching system, as well as its flagship Harmony network. Andy Coyne talks
to P&L?s Julie Ros about his now completely hands on approach to leading the post-trade processing firm.
JR: What was the main surprise you found going from being a
client of Traiana to running the company?
Andy Coyne: It was a real honour having worked with the
Traiana team for such a long time to suddenly be working there
and running the business. It was a big change for me. With 250
people, Traiana is a bigger team than I was used to, and it’s a
much more diverse business than it used to be – it’s very much in
the cross asset space now. That was the real learning curve for
me, but it was a nice surprise to see how much we’ve got going
on in other asset classes, which diversifies both our client base
and income stream. Generally speaking, it wasn’t a huge cultural
change, I’ve known the team and worked closely with them for
12 years and we’ve developed products together along with my
prime brokerage peers, so that was a fairly easy and enjoyable
JR: Is this your first non-bank job?
AC: Yes. I’ve been in banking since 1985, so this is my first nonbank
JR: Was it a tough transition moving from a suit every day to jeans?
AC: It’s a habit I’ve found hard to change! The good thing about
the change has been having banks as clients and being able to
understand what they’re looking for from a relationship with
Traiana. Having been a customer has been a huge help when I
talk to the client base, which were originally my peers and are
now my clients.
JR: You were Traiana’s first FX customer. You helped build its
first matching engine and conceptualised the Harmony product.
What was the industry like at the time, and how did Harmony
come to be?
AC: I was handed the PB business at Deutsche which, at the
time was very small and solely hedge fund focused. It was the
business that originated at Bankers Trust and it was one of the
early institutions that was setting up a PB business. Hedge fund
demand was all about market access and a much more efficient
credit model. When I looked at the business, I could see that it
lacked scale as it was completely manual and therefore risky.
Any mis-bookings or duplications would cost a PB business like
that a huge amount of money, so a matching engine became the
first priority. The idea was to try to make the whole process
electronic. On the buy side, such that they gave their trades up
electronically to what is now Traiana TRM, software which runs
most of the major FXPB operations. Once a few clients had
gone live, we realised that the focus now had to be on bank side
give-up messages that were still coming in manually so we
really needed to have 100% electronic messaging and as a
result, Harmony came about. We saw the benefit of a hub as
there would have been no advantage to having everyone
messaging bilaterally. We worked with Traiana, Chase and AIG
initially – and Harmony was the result of that collaboration.
Then of course, Harmony spawned a lot of other products and
services that we know today, which is a very broad offering.
JR: What are the main ways it has evolved?
AC: As the market grew, it did so primarily because of the growth
of e-commerce and prime brokerage, which gave people tighter
pricing and market access through credit intermediation. The
growth brought with it issues around scale and control and this
gave rise to products such as CreditLink. Whether it’s Designation
Notice Manager (DNM) or Tri-Party Limit Manager (TPL) or
ECN Limit Manager (ELM), these products are all about making
sure that credit is controlled and limits are adhered to. The later iterations of the CreditLink product suite such as Kill Switch, are
really about making sure that people who trade in their clearers’
names are sufficiently controlled so that issues such as broken
algorithms, trading restrictions, bankruptcies are mitigated.
JR: When I interviewed you at Citi back in 2009, you said
Traiana’s strength lies in how the people there listen to their
clients and are solution oriented. Now that you’re running things
– what are clients telling you they need?
AC: One of our primary focuses at the moment is helping our
customers respond to all the regulatory requirements. DoddFrank
threw up a lot of change that had to be delivered within a
certain timeframe. The interpretation of the Dodd-Frank rules
came with a lot of debate. People tried to make decisions about
how to structure the market and how to comply with the
regulations. There was a lot of uncertainty around what had to be
delivered by certain dates, but at the end of the day, we got
together with our clients to try and work out what were the best
steps forward. For example, CCP connectivity was obviously an
important first step for the OTC derivative markets. Trade
reporting is another one with looming deadlines that we’re
putting in place for our clients. We now have the capability to
clear for that community and give them a single point of access
to all clearing houses. Subsequent to that we have CFTC 1.73
Trade Certainty for OTC derivatives, which is a natural extension
of our existing products in CreditLink, where trades are credit
checked prior to trade execution using a central hub structure.
JR: Are you seeing increased demand for post-trade processing
or has demand been steady throughout the uncertain period of
new regulations coming through?
AC: The regulatory requirements are being addressed as a matter
of urgency and we’re in a good position to make sure all of our
clients are compliant by the deadlines. In post-trade, because we
are very much more cross asset than we ever have been, we’re
providing value, cost savings and risk reduction in cash equities,
CFDs, fixed income, futures, rates and CDS. What we’ve learned
is, whilst a lot of products can be very different in terms of the
way they’re structured, governed and executed, in the post-trade
environment there’s a lot of commonality between asset classes
because they all typically have aggregation, allocations,
matching, confirmations and limit checking – all of these things
are fairly uniform in most markets.
JR: Do you see any particular rules or market developments
giving rise to either concentration or operational risks?
AC: Not really. The issue of the CCPs has always been there. I
don’t think concentrating OTC derivatives to route through the
CCPs presents a particular issue because there is a choice of
CCPs. They’re adding some more markets to their capabilities,
but I think more people are looking to firms like ourselves to
solve the network issues that exist – so having us solve for one
input and multiple outlets to CCPs is a good way for them to
ensure that the implementation of clearing for OTC derivatives
runs as smoothly and efficiently as it possibly can.
There are some other issues, such as collateral, that some clients
may never have even considered. For example, FX clients that
have a combination of NDFs and OTC cleared derivative
transactions may have to post collateral in different places such
that there’s going to be a lot more demand from the banks for
products such as margin financing, etc.
JR: How do you foresee the new regulations impacting the NDF
AC: There’s two ways that it can go. Some people are looking to
pick and choose who they transact with depending on their
location and whether there are any national implications, so there
might be a little bit of that. Once the market turns to a fully SEFdriven
market, you might see growth, if there’s greater
transparency on pricing, and markets are structured in a new way.
It’s difficult to know at this stage, but there might be an amount
of growth within the NDF space.
JR: Do you see a need for central clearing globally?
AC: Again, it’s difficult to say at this stage, because whilst the
FX market has typically been very global, you see a lot of
different jurisdictions starting to interpret the rules in ways that
suit their particular needs. In many ways it might be creating
markets that are separated in some way and there’s a potential
that it could bifurcate liquidity into different pockets, but I
don’t see it going fully global, there’s too many national
interests at stake. A lot depends on EMIR and the US having
common ground. It could potentially be fragmented. They do
want an element of competition, whether it’s between clearing
houses, middleware vendors, or what have you, I think the
market – both end users and regulatory bodies – abhors
anything that’s too centralised.
JR: Besides Harmony CCP Connect, is Traiana doing anything
else to address regulatory compliance?
AC: Three main things: CCP connectivity, trade repository
reporting and ensuring trade certainty for swaps via our pre-trade
CreditLink Limit Hub. Limit Hub is focused on interest rate
swaps and CDS in the near term, then NDFs.
JR: When is that due?
AC: We’ve just rolled out the Interest Rates and CDS
JR: Do you think FX being recognised as different and exempted
from regulation will lead to more interest in FX?
AC: In terms of infrastructure, the FX industry already has a
high degree of control, and as such avoided many of the
issues seen in other markets – whether it’s the interbank
collateralisation that banks already conduct with each other or
through CLS with guaranteed settlement. I think that’s a good
thing. However, in the case of NDFs and options clearing, it
does cause technical difficulties, and probably pushes the
price up for the PBs and their clients. We are working to help
them to resolve this, but it does make the FX market a little
bit more complex.
JR: What does Traiana’s client base look like?
AC: I’d liken it to a network. On the sell side, it’s pretty broad
now. We also extend to next tier banks, hedge funds, asset
managers and retail aggregators. The relationships we have
extended to are not just PBs, but also FCMs, CCPs, SEFs, ECNs,
trade repositories, exchanges, software vendors and
administrators, etc. We pretty much touch any market participant
in some way, shape or form.
JR: EBS and Thomson Reuters are notable additions to Harmony
CCP Connect. What did those platforms bring to the network?
AC: They’re the other side of the network – you can’t have a
network in the clearing sense without having the SEFs on board.
It’s all well and good having the PBs and FCMs and their client
base, but it’s really important to have the SEFs integrated,
particularly for things like trade certainty, so when that
requirement hits, whether it’s rates or CDSs or NDFs, that credit
checking capability has to be in place. It’s important to complete
the network – no market exists without all the participants,
including the people providing the services.
JR: How often in a month, say, are users hitting the Kill Switch?
AC: There are different ways users can interact with that
system – CreditLink isn’t just an On/Off switch. We designed
the system to allow banks, prime brokers and their clients to
monitor usage and dynamically manage limits up and down,
and monitor for other technical risks. Ultimately, we have
components of CreditLink such as DNM and TPL, which is
where the PBs can amend their designation notices in real-time
to drive changes in limits that are ultimately being used
between the clients and executing brokers. TPL allows every
party to the trade – PB, client and counterparty – to know with
certainty that they are trading within limits pre- and post-trade.
The kill switch is typically used in a crisis scenario, obviously
if a limit is breached, it can be triggered, where a client has
had difficulties and all their lines need to be closed, or it can
be invoked by the client or their PB if we detect other
technical risks such as anomalous trading patterns or a nonpermitted
order type – whatever criteria the client, FCM or PB
sets in place – it’s very extendable to different scenarios. It has
been deployed ‘in anger’ if you will, five times – three times
in FX and twice in futures. But really what these tools do is
give clients the ability to completely manage, clients’ market
access in real time, whether it’s just amending limits or
moving credit between venues, or whether it’s the worst case
scenario and you’re shutting them down. But it can be an alert
system; it can be a monitoring tool alerting to changes in
behaviour that the PB or FCM may feel warrants a
conversation with the client.
JR: Do you see it becoming a standard practice or remain a last
AC: I think it should become standard practice. It came about
really because a number of the FX prime brokers were very
concerned about the level of market access their clients had,
especially given the credit models that were in operation on some
ECNs. These were not sophisticated enough to control potential
issues or the ability to prevent a client from over-trading. That’s
what it originally addressed, but as you can see, it now has
multiple applications especially in other marketplaces. It gives a
lot of comfort to credit and risk officers at institutions, especially
those people that are concerned about out of control trading
scenarios. It’s something I wish that I had a long time ago to be
JR: How did it come about?
AC: The FXPBs asked for it originally. It initially came about
because of the desire for credit control over credit posted to the
marketplace. ELM as a product came about for this reason.
They are Traiana-based hubs that allow any PB or FCM to
monitor the different venues that clients are allowed to trade on
and to move credit to/from those venues. This ensures that the
client can continue to have access, but also offers a way of not
having to put so much credit into the market – just managing it
rather than putting large notional, aggregate amounts into the
market. It was a natural extension of the idea that, if I have a
flash crash scenario, how do I know I can control it – it’s too
fast for a human to intervene. It has worked successfully on
every occasion so far. It can be pre-emptive too, before you get
into a loss-making situation, the kill switch can shut down all
access so trading can be stopped within a fraction of a second.
We look to the FCMs/PBs to tell us what scenarios they are
trying to protect themselves from and code accordingly. DNM
is also a control and risk mitigation tool, but it deals with the market wide use of designation notices. If, for example, you
want to close a client down, you can do it across all executing
brokers; you can notify them either directly within the system
or message them through the executing brokers saying no more
trading, or no more trading in a specific currency, product, term
or whatever, it’s immediate notification across all your
counterparties in one go. Whereas today, to amend notices, you
have to get the files out, you have to write a document, send it
over, get it signed – it can take half the day. So these things are
really changing the market, and in terms of risk and control,
these are huge changes.
JR: What’s your view on the opinion expressed by some that
pre-trade checking of algos is better than post-trade?
AC: Some people are concerned that pre-trade credit checking
may introduce some element of latency, depending on the model.
We have a combination of models: we can push credit; we can
allow people to ping for credit; or we can combine the two
depending on the exact quality of the client’s credit at the time.
That means we have complete flexibility. Nevertheless, there is
some expectation that there’ll be an amount of latency and one of
our aims is to make sure that is as minimal as it can be. Where
pre-trade credit checking is prescribed by regulation, then you do
get to a level playing field, but with latency there’s always ways
of continuing to improve it. We have significantly high goals
with respect to making sure latency is as minimal as possible. In
the markets where it’s not a requirement there’s really a choice
for the participants, if it’s T+1 with some controls over what’s
permissioned for a particular client, then that might work well
for some markets and their participants. Having that level of
control is a significant step forward from what’s existed before.
JR: Does the possibility of cleared and non-cleared trades
between the same parties represent a technology headache for
AC: That’s already been taken care of – for example, a lot of the
OTC derivatives that require clearing, have to have additional
data fields such as unique swap identifier, legal entity identifier
and unique product identifier, which have been built into the
Harmony message centre structure and are available now. People
are looking at USIs, we can help them there if they need that, but
it’s something people have to get ready for and it’s something
where we have a great deal of work going on.
JR: What do you see as the future of PB generally?
AC: I’ve always thought that ultimately it will be more complex
for the PB banks, but then that’s how those that can deal with the
complexity can differentiate themselves. The most important
thing is how they make their clients’ lives easier, and how they
are creative around the new issues – whether it’s bifurcation of
margin or how they report the client’s portfolio back to them,
even if some trades are cleared and some are not. So flexibility is
important. I think that clients will have a greater choice whether
they clear OTC or whether in the longer term, if products are
available for clearing, they might choose to clear more FX
products. It really depends on the economics of the market at the
time, but ultimately clients will have a choice and PBs will
certainly respond to that.
JR: A lot of the work Traiana is busy with at the moment is
around regulatory requirements, but beyond that, which areas in
particular are Traiana looking at in terms of next likely
AC: We have some interesting stuff going on in fixed income
and equities. We’re very active in the CFD market, that’s quite
significant – we have a lot of executing brokers, prime
brokers and clients on that platform already – and that’s
bringing benefits to the CFD market, which is growing
significantly. There’s a trend toward equity derivatives just
because it’s more efficient for them. In cash equities, we have
people using ClientLink and matching, allocations and
confirmations, because there are quite significant cost
structure savings there. In fixed income, the same, they’re
using ClientLink, a lot of it for allocations. A lot of end user
clients have different messaging formats that we normalise
and transform, so we’re giving them a lot of efficiency just by
taking a lot of the allocation problems away. In futures, we
are working with a number of FCMs to help deliver matching,
trade averaging and allocations. What’s unique in this space is
that the buy side is particularly interested in a single view
across FCMs. In FX, a lot of what we have going on at the
moment is regulatory, but we have interesting ideas for our
FX clients that we’re working on.
JR: In January, Icap, sold a 12% stake in Traiana to seven of
its bank customers, with an opportunity for them to acquire
an additional 20%. What does that mean to the way you run
AC: The day-to-day operations of Traiana will not change. I
have a management team in place that will continue to drive the
strategy of our business. This deal creates a platform for
Traiana to continue to innovate and transform the markets we
serve and make the global markets more robust for our
customers and their clients.
JR: What can we expect next?
AC: The challenge for Traiana now, given that we have a much
broader product offering and work in different asset classes, is
ensuring that we’re able to continue servicing clients at a high
level. Also, Asia is very important to us, so we’re committing to
opening a hub there in April. We have also started an annual
client survey, because it’s important to seek feedback about our
service so we can continue to monitor progress throughout the
year [the first survey saw 57% of Traiana clients give the
company more than 7/10].
Additionally, we are developing a lot of tools that our clients
can use to help themselves. Expect to see a lot more selfservice
tools that will help us create scale and make it easier
for our clients to do a lot of the data mapping and setups that
are required on a day to day basis, particularly for the PBs