Solid robustness of the network for trade processing and clearing of equity swaps proved crucial during the covid-19-induced disruptions of 2020, particularly during the high-volume days in March and November. Traiana’s Ryan Spencer looks back to give the big picture – and makes the case for increased automation in the tracking and analysis of breaks.

By Ryan Spencer, Head of Securities Business Development at CME Group’s Traiana

To say it has been a roller coaster ride for equity markets last year would be perhaps the biggest understatement of 2020. From seemingly never-ending share price and volume rises in mid-February, to record lows in mid-March, as the scale of the pandemic’s spread became evident to all, volatility has returned to markets in a big way. 


Across Europe and other regions across the globe, countries implemented strict lockdown measures to prevent the virus spreading. While global equity markets remained open through the lockdowns, this did not stop widespread concerns about how exactly firms would handle the logistics of working from home and the impact on operational processes and settlement risks. At this point, the elevated disruption of the day to day functioning of the equity swap markets were high on the agenda. This was a disaster recovery situation way beyond that which anyone could have imagined and firms really began to look at their vendor partners to hold up and maintain business continuity across multiple asset classes with Traiana being the key t-zero network for the trade processing and clearing of equity swaps. 

Focus was on other risks

Traiana maintained exceptional levels of stability and robustness across our pre and post trade services.  This was particularly important during the high-volume days in March and November, enabling firms to scale up and settle trades efficiently to reduce risks across the global markets. 

The knock-on effect of the pandemic led to firms focusing on other high-risk issues that occur further downstream as they became more prevalent and magnified during 2020.  The attention was very much centred around the agreement of cashflows particularly in relation to the equity swap business and the cashflows generated by ‘swap’ lifecycle events such as resets, unwinds and corporate actions including dividends.

These issues have been a persistent thorn in the side for buy-side and sell-side firms for many years with this topic re-emerging and once again becoming a priority to reduce the noise on swap breaks and begin the transition to automating the day-to-day reconciliations so both sides to the swaps are clean at the point of generating the cashflows.

A flurry

Traditionally, it is the responsibility of the buy-side clients to notify the swap providers of any breaks across the trade, valuation and payments reporting stacks within a certain time frame. However, often the true scenario that plays out is a flurry of breaks and amend requests during the reset periods when the swap valuations are crystallised, and cash is moving into the prime or custodial accounts. 

These resets and cashflow amounts can run into multiple millions of each swap currency for the larger equity focused Investment Managers. On the flip side and if, for example, a major investment bank has 400 buyside clients, and 200 of them are coming in at month-end for resets, while the other 200 are coming in mid-month with their resets, then the bank in question has a fundamental risk concern that they need to monitor closely during these periods. The more time it takes buy-side firms to sift through all of their reports to identify the magnitude of the break(s), which can take days in some cases, the bigger the resource and cost burden. 

A key question facing the industry in 2021 is how exactly can banks and their clients overcome operational challenges around mis-bookings and cashflow related breaks in order to reduce daily valuation & settlement risks and tighten operational processes whilst maintaining healthy trading relationships?

One of the biggest factors behind the time it takes to understand the root cause of the breaks is the sheer number of different break types that can occur. From a missing trade to a break in the execution price or financing spread, not to mention booking trades into the wrong funds, there are countless scenarios that could occur both at the swap wrapper, trade and valuation levels. Trades being mis-booked are likely to cause most valuation breaks, which in turn can follow into the cashflow breaks if they are not addressed in good time. 

Emails keep staff busy

Another key element that eats into the investigation time is spotting the breaks. The European swap desks at the banks generally book their trades and close their books by 6:30pm (CET), and subsequently kick off the end of day reporting batch runs that are delivered to their clients on T+1. The buy-side firms are subsequently looking at data on T+1 and they need to set up complex reconciliations to identify the breaks. The trouble is that the hedge fund or asset manager generally check the trade and position data and send numerous emails to the various banks and business units that they have disputes with. The bank has to investigate all of the breaks, whether that is with a certain trading desk or looking into the report query before deciding to make an amendment or disagreeing with the dispute. This is an immensely laborious communication and investigatory process that continues until one side realigns their booking to agree to the same swap data value. 

If this was not enough to consider, the other issue is the impact on the relationships between the banks and their clients when errors occur. In the equity swaps market, if a corporate action has been closed out based on an incorrect position, then one side of the trade is going to have to take a hit on their P&L. This really gets to the heart of how relationships between buy- and sell-side firms can unwittingly be compromised. Neither side wants to absorb the loss, and this can unnecessarily lead to negative consequences primarily as there is no centralised tool monitoring the day-to-day swap data for both parties to view the breaks. 

The efficient alternative

There needs to be a much more efficient way of tracking all of the breaks and the reasons behind them. With Traiana’s new Equity Swaps Lifecycle Management (ESLM) service, a bank and their buy-side clients can now access the same reconciled data on a single platform which means, for the first time, top day break risk data can be viewed and tracked with confidence allowing swap desks to make the amends before cashflows are generated. 

The answer lies in having a system that tracks not just all of the breaks, but crucially, the insights behind the breaks. Banks are commonly blind to any inconsistencies and breaks with their data and would benefit from using a platform that captures the results of reconciling their swap data versus their buy-side client data which means, for the first time, they can monitor top day break risk data with confidence. 

Mind the wrapper

In addition, when a bank creates an equity swap instrument when facing off against a buy-side client across different funds, they would typically create something called a swap wrapper. In short, this is essentially the intricate terms and conditions of an equity swap contract that is linked to the Master Agreement. If someone on the swaps desk changes a value in a swap wrapper, such as a change to the reset schedule from monthly to quarterly, this has a dramatic impact on the behaviour of the trade data that comes into their reporting. 

As a result, there will be a significant impact on the swap value because a buy-side client would expect the swap wrapper to behave in a certain way. Such changes are challenging for the buyside firms to identify as they are not associated to the standard swap reporting packs and are often missed causing a plethora of problems downstream. This is why, alongside the actual trade data, identifying the swap wrapper as a break source is key. The main causes of breaks can be stripped back to trades as 80% and swap wrapper as the remaining 20%. A central platform pulling data to show to buy-side clients, for the first time, a 360 view of main data sets across different trades will help address 100% of the issues. 

Regardless of what 2021 has in store for global equity markets, equity swaps will continue to play an increasingly important part in how hedge funds and asset managers gain exposure to global markets. However, in order for market participants to benefit from the many advantages of equity swaps, longstanding settlement risk issues need to be ironed out. Ultimately, wrappers, trades, positions, financing, and payments are the core data sets buy-side firms are interested in. All this data contributes towards the overall value of equity swaps. If one of these data sets breaks, then the likelihood is that it is going to cause a cashflow break at reset. If both the buy-side and sell-side have a central platform pulling data to show a full view of all the main data sets across different swaps, then the market will be much better placed to more efficiently match and settle the swaps cash flow events and move towards reducing risk and increasing automation.

Ryan Spencer is Senior Director and Head of Securities Business Development at Traiana, part of CME Group. Ryan’s role focuses on delivering new initiatives along with enhancing existing products to optimize the front to back workflows across the equity swap markets and global participants. 

Prior to joining CME Traiana in 2017, Ryan had over 15 years of experience in Prime Brokerage roles including credit & rates intermediation and client relationship management. He most recently worked at Bank of America and previously at Merrill Lynch and JPM Morgan.

Ryan holds a BSC in Business & Sport Sciences from Brunel University where he also represented Great Britain Universities in the World Student Games after his professional & youth career at Tottenham Hotspur F.C. 

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As the world’s leading and most diverse derivatives marketplace, CME Group ( enables clients to trade futures, options, cash and OTC markets, optimize portfolios, and analyze data – empowering market participants worldwide to efficiently manage risk and capture opportunities. CME Group exchanges offer the widest range of global benchmark products across all major asset classes based on interest rates, equity indexes, foreign exchange, energy, agricultural products and metals.  The company offers futures and options on futures trading through the CME Globex® platform, fixed income trading via BrokerTec and foreign exchange trading on the EBS platform.  In addition, it operates one of the world’s leading central counterparty clearing providers, CME Clearing.  With a range of pre- and post-trade products and services underpinning the entire lifecycle of a trade, CME Group also offers optimization and reconciliation services through TriOptima, and trade processing services through Traiana. 

The content in this communication has been compiled by Traiana for general purposes only and is not intended to provide, and should not be construed as, advice. Although every attempt has been made to ensure the accuracy of the information within this communication as of the date of publication, Traiana assumes no responsibility for any errors or omissions and will not update it. Additionally, all examples and information in this communication are used for explanation purposes only and should not be considered investment advice or the results of actual market experience. Traiana is not a regulated entity.

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