When thinking of financial wizardry you are usually drawn to Wall Street or the leafy lanes of Connecticut, where derivatives traders think up even more exotic derivatives with fruity acronyms.
But when you think of clearing these derivatives, your thoughts are usually drawn to locked rooms in Brussels where regulators wonder how clearing ever got this complicated in the first place.
MPS Capital Services, the corporate and investment arm of Monte dei Paschi di Siena, the 538 year-old Italian bank, is doing its best to cut through the complications.
During early September, MPS began to clear $200 billion worth of interest rate swaps on SwapClear, LCH.Clearnets clearing service for OTC interest rate swaps. The move was the first major clearing mandate for backloaded trades.
Backloaded trades are existing trades by MPS Capital that need to be loaded onto BarCaps OTC derivatives clearing business, then cleared on SwapClear (BarCap was nominated as MPSs primary clearing broker). Clearing these trades decreases counterparty risk and increases transparency.
Speaking to GlobalCustodian.com, Ray Kahn, head of OTC derivatives clearing at Barclays Capital said: This is the first move by a buy-side client to use central clearing in a substantive way.
Now in late September MPS, along with Credit Suisse, has taken part in the first electronic tri-party client interest rate swap trade, using Tradewebs trading platform.
MPS has blazed a trail for the marketplace, said Enrico Bruni, head of European rates at Tradeweb.
The automation of OTC derivative trade processes also ticks those key regulatory boxes of decreasing risk and increasing transparency. It seems that MPS, despite being the oldest bank in the world (think of those legacy systems) is moving ahead with derivative reform, and all without a regulatory gun at its back.