LSEG FX Launches Hard Matching for FX Swaps

LSEG FX has introduced hard matching on its FX Swaps Matching platform, a change discussed at last year’s Full FX conference in London, to enable pre-trade credit to be loaded onto the platform, thus eliminating one of the obstacles to fully-automated FX swaps trading.

Hard matching has been in operation on the firm’s spot platform, as well as elsewhere in the industry, but this marks the first time it has been available on LSEG’s FX swaps CLOB. Soft matching – where credit is checked after the trade and counterparty details have been provided – is the backbone of the inter-dealer voice market, meaning that dealer intervention remains a critical part of the process. This is what the hard matching solution is designed to eliminate, thus reducing operational friction and increasing confidence in execution.

To support low latency and maximise execution certainty, LSEG says the Matching CLOB will prioritise – at a given price level – orders that meet hard match criteria over those requiring negotiated (soft) matching. To achieve this, it has introduced a new browser-based credit management tool, the Matching Credit Admin, designed to support the new methodology.

This solution will enable participants to establish and maintain credit limits directly on the venue, either via a GUI or through an API, it adds.

The initial release has a daily trading limit function, an existing limit type from FX Spot which captures the total notional traded with a counterparty on a given trade date and resets daily. Also supported is the industry-standard daily settlement limit, which measures credit usage by value date, on either a gross or net basis, with the ability to incorporate CLS-related risk reduction.

In the next release, LSEG says it will support potential future exposure credit checks, that will allow participants to more precisely model counterparty risk, with trades consuming credit based on a configurable factor grid by currency pair and tenor. This will provide a more risk-sensitive framework aligned with how participants manage exposure internally, it explains.

“LSEG FX believes this is just the beginning of the evolution in automated FX swaps trading and has plans to continue its investment programme over the next few years,” the firms says in a statement. “Increasing the tools at the disposal of the manual user, advancing order types via the API, expanding credit options including the ability to ‘clear where beneficial’ are just some of the planned features.

“We are firmly of the view that a healthy electronic interbank landscape will bring benefits to both sell-side and buy-side and make for an even more robust FX swaps market,” it adds.