OMGEO, EUROCCP TO DEVELOP PAN-EUROPEAN CENTRAL COUNTERPARTY FOR HEDGE FUND TRANSACTIONS

Posted June 8, 2009

LONDON -- Omgeo and EuroCCP have launched joint development of a pan-European equities central counterparty (CCP) service for hedge fund transactions. The new service will mitigate the counterparty risks and reduce the inefficiencies that today characterize the hedge fund/prime broker/executing broker processing chain. The new processing solution will be based on Omgeo Central Trade Manager (Omgeo CTM), which services trades from execution through to settlement. Omgeo and EuroCCP expect to conduct pilot testing of the new model this year and aim for a 2010 launch of the service.

“We have a shared goal: to deliver automation and its benefits to as many counterparties as possible,” says Diana Chan, CEO of EuroCCP. “With Omgeo’s strong base of hedge fund clients and EuroCCP’s robust central counterparty infrastructure and risk management expertise, together we can extend our capabilities to prime brokers and executing brokers.”

Currently, the settlement of hedge funds’ trades between their executing and prime brokers occurs as OTC transactions without any CCP guarantee. All parties, including the underlying hedge funds, are exposed to counterparty risk. The introduction of a CCP in this settlement chain substantially reduces counterparty risk between the prime and executing brokers and thereby also substantially reduces the exposure of the hedge fund to their executing brokers.

Omgeo and EuroCCP will mitigate these counterparty and operational risks and inefficiencies with an institutional trade processing model that will route hedge fund/prime broker equity trades -- as well as other OTC transactions -- from trade matching through central counterparty netting and onward to settlement finality. The model will enable a prime broker to authorize locked-in trades and release them to EuroCCP, where the trades will be guaranteed, netted and routed to the proper European central securities depository (CSD) for settlement on a netted basis.

“EuroCCP has done a fantastic job in offering the lowest settlement costs for its participants,” says Marianne Brown, President and CEO of Omgeo. “By working together to streamline trade processing for hedge funds, prime brokers and executing brokers, Omgeo and EuroCCP hope to reduce settlement costs even more. Together we share the goal of greatly reducing post-trade and settlement risks and look forward to leveraging each other’s expertise to bring meaningful value to the prime broker world.”

The Omgeo/EuroCCP processing solution initially will cover equities in 15 European markets and seven currencies. By netting customers’ gross obligations, EuroCCP will dramatically reduce the number of settlement transactions. (NOTE: Due to stamp tax regulations, netting is not likely to occur in the near term in the UK and Ireland.)