Fintech firm Capitolis has tapped the optimization solution of the British clearing house, LCH, to enable banks optimize their risk management in the FX industry, particularly in FX forwards, swaps, and cross-currency swaps.

According to the company's statement released today (Tuesday), integrating LCH's FX Smart Clearing solution will enable banks, through Capitolis' technology, to find the ideal capital and funding state between cleared and uncleared markets by moving optimized trades where they fit best.

Multi-Lateral Optimization

"Combining FX Smart Clearing with our post-trade optimization technology is the ideal approach to managing capital for our customers," said Gil Mandelzis, CEO and Founder of Capitolis. "The relationship with LCH ForexClear, coupled with our network of participating global banks, is a sophisticated and advanced model for the industry, bringing multi-lateral optimization to the next level by including a clearing node."

Capitolis said it demonstrated the benefits FX Smart Clearing will add to its existing Standardized Approach to Counterparty Credit Risk (SA-CCR) through partnerships with nine banks. The proof-of-concept reached a network yield of 42% of the total funding costs, including the funding for capital. SA-CCR is a methodology that measures counterparty credit risks.

Furthermore, LCH expects to take advantage of the new initiative in partnership with Capitolis to reach more market participants for them to benefit from ForexClear. "FX Smart Clearing is another tool we are providing for banks to financially optimize their resources, unlock capital constraints and help to ensure a safe and efficient financial system," commented James Pearson, Head of LCH ForexClear.

Capitolis Targets Global Banks

Founded in 2017, Capitolis aims to support banks as well as the institutional investors. The New York-based company counts venture capital firms, including Andreessen Horowitz and Sequoia Capital, as some of its investors.

Meanwhile, Finance Magnates recently reported that the pan-European stock exchange, Euronext, announced the decision to sell its majority stake in LCH SA. The stake will be purchased by LCH Group Holdings for €111 million and the sale is expected to be finalized in July 2023.

Euronext acquired LCH SA in 2017 through a share swap deal where Euronex swapped its 2.3 percent ownership in LCH Group for an 11.1 percent stake in LCH SA. The latter is a clearing house based and regulated in France.