Clearing bank of the year: Citi

Citi stood out this year by showing its strength in managing a global clearing franchise amidst an international pandemic through a combination of well-organised operations coordinated by staff in various Asian markets, and delivered by world class technological infrastructure, built over multi-year investments in technology and people.

“Prior to the pandemic, and over the years, we have made a significant investment in our technology infrastructure in the clearing space. This made sure our systems were resilient, and our operations could quickly adapt to the changed environment, helping us successfully navigate through the pandemic with minimal client disruptions,” says Sachin Tulshyan, a Citi managing director and the Asia-Pacific (Apac) product head for futures, clearing and foreign exchange prime brokerage. “In comparison, our competitors have not had the same level of resiliency, and there have been instances of outages due to overwhelmed systems during this time.”

The Apac clearing team demonstrated a strong appreciation of clients’ interests and needs across the region. For example, Citi was the first clearing broker to offer clearing via Eurex in Japan, and further advocated to central counterparties (CCPs) to support additional non-cash collateral types in light of phase-five uncleared margin requirements (UMR).  

Covid-19 response

Asia was hit early on by Covid-19, but the bank was able to activate its contingency plans across the region, which enabled it to “continue its operations seamlessly with minimal client impact”, says Manu Dua, the bank’s head of sales for futures, clearing and FX prime brokerage in Asia. “The trade settlements and clearing happened as per the schedule.”  

Prior to the pandemic, and over the years, we have made a significant investment in our technology infrastructure in the clearing space. This made sure our systems were resilient, and our operations could quickly adapt to the changed environment

Sachin Tulshyan, Citi

During the pandemic, a large proportion of the bank’s staff started working from home and Citi’s clearing team was able to adapt seamlessly to a remote working environment.  He adds that “clients were very satisfied with Citi’s arrangements and did not feel any [adverse] impact [to service] due to staff working from home”.

With the ongoing Covid crisis and elevated market volatility, Citi started proactive engagement with CCPs to encourage a review of best practices mainly around anti pro-cyclicality, margin adequacy, transparency of ad hoc calls as well as improvement in technology to alleviate liquidity issues in the event of large market movements.

Global bank, local markets

Citi’s operations stretch across Asia, yet, as business has become more competitive regionally, those entering the fray will need robust risk management and strong balance sheets in order to support and provide sufficient trading capacity to meet clients’ demand.

Tulshyan stresses that the bank has a deep local involvement in each product category it offers, adding that it wants to be relevant to clients across geographies and product lines. To that end, Citi’s clients have appreciated the cross-product and cross-margin capabilities it has provided them with.

UMR and FX clearing

Citi also deserves to be lauded for various thought-leadership events around phase-five UMR requirements, which finally started in September this year after a one-year delay due to Covid.

“There’s a clear merit to uncleared margin rules in reducing the systemic and credit risks. Participants, especially in the FX market, see this as an opportunity to innovate, which has resulted in massive interest to move from bilateral to cleared trades,” says Tulshyan.

Citi proactively reached out to regional clients to offer support around impending regulatory changes and readiness for the rollout.

To support and drive clearing adoption, Citi developed the FX PrimeClear model that enables clients to preserve their preferred prime brokerage operational model and bilateral liquidity, while achieving real-time clearing of their FX non-deliverable forwards.

“We foresee NDF clearing picking up in the region, especially among clients from Taiwan and [South] Korea,” says Weilong Tan, a Citi product manager and assistant vice-president for over-the-counter clearing and FX prime brokerage in Singapore. “Anticipating that the demand for collateral and high-quality liquid assets will increase, we advocated to CCPs to introduce and support domestic securities as eligible non-cash collateral. This has provided our clients with funding alternatives, which helps to alleviate their liquidity and cost concerns. ”

Such assets include government securities denominated in Australian and Singapore dollars to promote clearing as an alternative; against the backdrop of a vast transformation for clients to comply with UMR phase-five requirements.

Speaking on condition of anonymity, one Citi client in Tokyo said his firm was very satisfied with the bank as his firm’s non-Japanese yen derivatives broker.

“In the Tokyo time zone, they are very prompt and efficient in the service they provide,” he says.