The Challenge

Equity Finance divisions of Investment Banks hedge their inter-bank derivative trades (Total Return Swaps and OTC Futures) with large underlying equity hedge trades Too large to execute on the stock exchange order books, these trades are often executed through inter dealer brokers (IDBs). The IDBs manually source the liquidity and use their own balance sheet to act as the counterparty to each side of the anonymous trade.

Amid moves by the banks to improve their STP for Equity Finance trading and regulatory pressure for on-exchange transparency and central clearing counterparty (CCP) cleared models, this traditional OTC process is being questioned as we approach MiFID II. The challenge is further compounded by restrictive credit limits against the IDBs and the OTC transaction chain through the IDB does not meet every firm’s requirement to comply with ‘true-sale’ accounting policies.

The Solution

Built with some of the world’s leading investment banks, Squawker designed, developed and implemented a central hub to co-ordinate the execution of equity hedge trades on-exchange for the Equity Finance community. The new solution supports the trade reporting, MiFID II and MiFIR regulatory requirements to execute trades on exchange with CCP clearing. In addition, Squawker’s solution overcomes several key operational issues that currently restrict and limit trading in certain markets, such as automatic registration of share ownership in Spain.