Baton Teams-Up with Citi to Upgrade Treasury Function for Cleared Derivatives
FREMONT, Calif., Oct. 8, 2020 /PRNewswire/ -- Baton Systems ("Baton"), a leading provider of post-trade solutions for capital markets, has teamed-up with Citi to help build its treasury function for cleared derivatives.
Baton's platform will aggregate data from Citi's banks and custodians and track collateral collected from its clients all the way through to CCPs. In addition, Baton will enable real-time visibility of excess/deficit calculations, collateral posted, and eligibility, haircuts and risk thresholds for specific clearing houses. Citi will be able to implement automated rules to optimize the movements of cash and securities to/from clearinghouses, eliminate manual entries into multiple systems, and reduce collateral risk and cut operational costs.
"Managing and redeploying cash and collateral has always been critical for safe and economic performance of clearing members," said Arjun Jayaram, CEO and Founder of Baton Systems. "As evidenced by the recent bout of volatility, it is even more critical for financial institutions to be equipped with tools that will help them effectively manage their intraday liquidity needs and reduce risk. Baton is increasingly recognized as the leading industry provider for these capabilities and we look forward to playing a role in improving Citi's treasury workflows."
"Our integration with Baton will help drive greater efficiency across our entire collateral workflow process and significantly reduce the risks we typically see with manual intervention," said Mariam Rafi, Head of Financial Resources Management for Citi Futures, Clearing and FXPB. "The automation and real-time view of collateral the system provides will enable us to more effectively deploy capital in the right place at the right time."
The Baton platform is immediately scalable across any financial institution, exchange or clearing house. Baton is extending its network across North America, Europe and Asia, and is in the process of expanding its office in New York and India.
About Baton
Baton Systems is reforming how payments are made in the world's largest financial markets. By delivering on-demand synchronization and orchestration of asset movements through its distributed ledger-based platform, it is liberating balance sheets and eliminating the need for capital-intensive pre-funding of FX and margin requirements. Founded in 2016 by technology, payments and capital markets veterans, and backed by venture capital, Baton Systems works with numerous market participants – including major global banks, custodian banks and exchanges – to meet today's demands for capital efficiency, regulatory compliance and operational superiority. Find out more at www.batonsystems.com.
Baton Automates Workflow for FX Settlements
This article was originally posted on Profit & Loss
Baton Systems, a provider of post-trade solutions for capital markets, says it has extended its FX functionality to address an increasing demand for a faster and more efficient FX settlement system. By deploying Baton’s core components, already in use across a number of global banks, Baton is delivering a fully end-to-end FX settlement ecosystem.
Baton is implementing three new functional modules that will be integrated into financial firms’ existing processes – the Pre-settlement Matcher, Settlement Monitor, and Liquidity Tracker.
The Pre-Settlement Matcher automates communication and the agreement process between counterparties on netted payment values. The Settlement Monitor tracks and reconciles inbound payments, allowing intraday updates on settlement risk, and actual or potential failed settlements. The Liquidity Tracker maintains available account balances and combines them with expected, completed, and pending incoming and outgoing payments.
Baton says that through its enhanced workflow for FX settlements, financial institutions benefit from a transparent, scalable, cost-effective and robust process from pre-settlement payment agreement, all the way through to optimised payment sequencing and same-day reconciliation.
“Capital markets have been hindered by legacy systems and a lack of effective monitoring and management of operational, counterparty and liquidity risk,” says Alex Knight, head of EMEA at Baton. “Baton is revolutionising an end-to-end FX settlement ecosystem by harmonising workflows and eliminating manual processes. As a result, our upgraded FX functionality is enhancing banks’ use of available liquidity and reducing settlement risk.”
It’s not just about cutting costs
Few in the markets and banking business will argue with the notion that streamlining operations through removal of manual processes and reduction of settlement risk is a worthy goal. However, when it comes to budget allocation, these areas have consistently been overlooked in recent years, with technology spend gobbled up by electronic distribution, risk management and regulatory compliance solutions.
But now the tide is turning. The Covid-related period of intense market activity earlier this year, combined with the physical dislocation of staff, shone a clear light on some of the inefficiencies of the post-trade world. But even before that, firms were already focusing more attention on opportunities to make real gains, especially in the face of ever-mounting pressures on costs, capital and liquidity, and risk.
The fundamental issue is that complex and manual processes are expensive and risky. Errors result in financial loss, customer dissatisfaction and (often) regulatory sanction. Business capacity is constrained, and, increasingly, operations teams are (quite rightly) refusing to take on new processes unless they are fully automated. To cap it all, inefficient processes mean that liquidity is locked up, often for days.
So, what’s the solution? While the ultimate goal may be to replace the proliferation of legacy systems that encumber most businesses, this is a massive task with material risk and cost. Brian Cunningham, (CIO for Enterprise Technology at Bloomberg) recently observed that CTOs are thinking about the practicality of what they can adopt now.
At Baton, we see that in most cases three broad areas need to be tackled: data availability, deployment of business rules and processing of payments.
Data relating to outstanding financial obligations and available assets/liquidity needs to be delivered in close to real-time, across business silos, in a normalised manner. This data is key to monitoring the business and providing the input for decisions.
Business rules need to be established and implemented to allow for the automation of alerts and actions. With real-time data that has been normalised and aggregated, many tasks that are currently performed manually can be processed in a fully automated manner.
The final step is the actual processing of payments, which must be sequenced to meet key business objectives, such as risk and liquidity. Instructions should be generated in an automated manner with no need to re-key, thereby eliminating the very real concern of releasing a payment for an incorrect amount.
Firms that fail to resolve the inefficiencies in their post-trade processes run the risk of falling behind. For those that get it right, the rewards are compelling. Better use of bank and client assets improves returns and reduces liquidity drag. Elimination of manual processes reduces costs and increases capacity. And better data and controls allow for vastly improved risk management and controls.
Baton Systems is changing the way payments are made in the world’s largest financial markets. For more information, contact us today.
Preparing for the Perfect Storm
By Ferdinand Peelen – EMEA Director of Sales, Baton Systems
In March, we were confronted with a stark reminder of the challenges banks face during periods of extreme volatility, as customers drew down on agreed credit facilities, and risk weighted assets (RWA) and associated capital requirements rose.
A report by Clarus Financial Technology highlights the significant increase in derivatives margin requirements during March. Most central counterparties (CCPs) reported record amounts in margin calls. CME Base (the core future and options franchise), for example, saw aggregate initial margin (IM) up by $1.7bn to $9.5bn, a fivefold increase on the previous daily record.
Any volatility-related capital squeeze amplifies funding, market and operational risks. These are existential risks to businesses
Regulators were quick to come to the aid of banks in these exceptional circumstances – for instance, when the Financial Policy Committee of the Bank of England released a statement in which it announced that the requirement for a countercyclical capital buffer would be removed on 11th March.
While such leniency provides a welcome reprieve, removing buffers can create vulnerability when there are repeated waves of market volatility – unless, of course, market participants have been able to replenish reserves or de-risk in the meantime. End-Q2 2020 figures around bank credit usage and RWA data will be carefully studied by analysts the world over to get a better understanding of how prepared banks are for further waves of volatility.
Increasing margin requirements isn’t the only thing to affect market participants during periods of extreme volatility. Bid/offer spreads widen when there is uncertainty and limited risk appetite, which in turn adds to price volatility in a classic vicious circle.
As this article on Risk.net shows, the cost-to-trade (CTT) of derivatives as a result of wider bid/offer spreads rose across products. For example, in March, the CTT $5m notional in S&P futures increased 107% on average , when compared to a baseline of the three months preceding.
A perfect storm
With Brexit negotiations nearing their conclusion and the spectre of further waves of Covid-19 on the horizon, market participants find themselves in the path of another perfect storm. Where client firms face a higher cost to trade and soaring margin funding requirements just as they are scrambling to hedge market risk. Where the banks servicing them find their ability to manage value at risk under increased pressure, while they work to accommodate growing demand for intraday financing from clients facing more frequent and higher intraday variation margin calls.
It is likely we will face further bouts of extreme volatility and Baton System’s clients are preparing for this possibility and using the current period of lower volatility to:
- Manage assets efficiently so that they can be deployed where most needed in times of high volatility
- Improve decision making with better, faster data, integrated with eligibility and haircut rules
- Eliminate operational hurdles for processing moves; increase capacity by at least 300%
- Manage liquidity; grow net interest income
Get in touch to find out how we can help you prepare to support your clients when it matters most.
Referenced sources:
- https://www.clarusft.com/clearing-house-margin-calls-in-q1-2020/
- https://www.bankofengland.co.uk/prudential-regulation/publication/2020/statement-by-the-pra-accompanying-measures-announced-by-the-fpc
- https://www.risk.net/risk-management/liquidity-risk/7547206/holistic-liquidity-measures-during-covid-19-supply-demand-and-market-conditions
How technology can free up capital in clearing systems
20 May 2020 | Increase in volatility and margin calls highlights importance of control over collateral
By Arjun Jayaram, CEO and Founder of Baton Systems
With the increase in the number and size of margin calls – as well as other financial obligations – speed, automation, visibility and control over cash and collateral is more important now than ever. Why? Because liquidity constraints are increasingly becoming problematic in capital markets.
Take the cleared derivatives markets for example. A small number of well-known financial institutions handle the key "plumbing" of these markets, namely the margin collection and collateral management functions with their clearinghouses. That means they are exposed to large demands for liquidity whenever volatility increases and the clearinghouses step up their margin requirements.
As an illustration, many CCPs increased their initial margin... read more.
Payment and Settlement Technology Provider: Baton Systems
Baton Systems wins Best Payment and Settlement Technology Provider in the 2019 Fintech and Regtech Global Awards
From Central Banking: In January 2016, the Bank of England (BoE) announced it would develop a blueprint to modernise the UK’s Real-Time Gross Settlement (RTGS) system in response to changing needs. Two years later, the UK’s central bank has completed several proofs of concept to understand how a renewed RTGS could support settlement in systems operating on innovative payment technologies. One of the firms the BoE partnered with was Baton Systems. Read more...
Baton Systems raises $12 million for blockchain-inspired bank payments infrastructure
From VentureBeat: Baton Systems, a three-year-old Fremont, California-based provider of bank-to-bank payments infrastructure modeled on blockchain technology, today announced that it’s raised $12 million in series A funding from Trinity Ventures, with participation from Alsop Louie and Commerce Ventures. Read more