Derivatives client clearer of the year: Citi

Risk Awards 2026: When tariffs rocked markets, Citi’s FCM was a model of reliability

Mariam Rafi and David Collis

Photo: Alex Towle

Clearing brokers that funnel customer trades to derivatives clearing houses have made a habit of falling short of expectations in times of market stress.

When futures volumes spiked during the Covid-19 pandemic in March 2020, the operating systems of futures commission merchants (FCMs) struggled to cope. Several suffered outages, resulting in a spate of broken trades and missed margin payments.

Citi’s FCM, led by Mariam Rafi, has spent the past three years trying to become the exception to the rule. The business has poured significant resources into beefing up its infrastructure, upgrading everything from its order management system to its processing and collateral platforms to boost operational efficiency and resilience.

The focus on reliability paid off in April, when US president Donald Trump’s Liberation Day tariff announcements sent shockwaves through markets. Futures volumes hit record levels. Citi’s clearing infrastructure held firm.

“Citi FCM does an amazing job operationally,” says one hedge fund client. “Their operational soundness is showcased in stress events such as Liberation Day.”

Being open for business during periods of high volatility has become an increasingly important consideration when selecting FCMs, this client adds. “Market stress has made operational soundness a factor in deciding our partners holistically. We take special note of FCMs that run away from risk during times of stress.”

We have always been strong in OTC clearing, where we maintain our number one position, but the real growth has been in futures

Mariam Rafi, Citi

A second hedge fund source confirms there were no disruptions to Citi’s clearing services in April: “In periods of volatility, Citi are not coming to us to increase margin or decrease exposure. This allows us to be very consistent and pursue the investment thesis that we want.”

Citi’s reliability has been rewarded by clients. The firm remains the largest client clearer of over-the-counter swaps, with $31.6 billion of initial margin held against such trades at the end of September, according to data from the Commodity Futures Trading Commission (CFTC), down 6% from $33.5 billion a year earlier. Initial margin held against listed derivatives trades, meanwhile, jumped 26% from $17 billion to $20.5 billion over the same period. 

“We have always been strong in OTC clearing, where we maintain our number one position, but the real growth has been in futures,” says Rafi, Citi’s global head of futures, clearing and foreign exchange prime brokerage (FXPB).

Related

Sluggish back-office systems added to margin pressures 

Systems supplied by FIS struggled to handle massive spike in March trading volumes

Growing futures clearing has been a strategic priority at Citi for some time. The firm has executed this strategy in a controlled way, even telling some existing clients to seek out additional clearing providers to ensure they could continue hedging and adding exposure, creating capacity for growth ambitions.

“We were very mindful of the risks we took within the business,” says Rafi. “We had some clients that were very large, and in some instances, we were their only provider. It was prudent for them and us to have diversification. We made a conscious push to encourage them to have multiple providers.” 

The investment in Citi’s clearing infrastructure remains ongoing. The firm is currently in the final stages of a multi-year project to move off FIS’s mainframe-based clearing and accounting system, GMI. FIS infrastructure was at the heart of the operational bottlenecks in 2020.

Rafi says clients can expect further improvements in Citi’s clearing service once that project is complete. “We have been putting a tremendous amount of investment into moving to Ion’s XTP platform, which provides real-time processing and data availability,” she says. “This is not a trivial exercise. It’s a very large tech investment. We are going to be the first tier 1 FCM to move to a platform that will deliver benefits to clients such as real-time availability of data.”

Japan calling

While the growth story has been futures, Citi has continued to diligently build out its swaps clearing services.

In September, the CFTC finally granted permission for US clients to clear their yen interest rate swaps at Japan Securities Clearing Corporation.

US hedge funds in particular have long sought access to JSCC, which has a 53% market share in yen swaps, according to data vendor Clarus, and an even bigger footprint – 71% – at the long end of the curve, due to the preponderance of Japanese institutional investors clearing there.

Citi worked closely with JSCC to prepare for this development, even working behind the scenes to facilitate meetings with US hedge funds that did not have a presence in Tokyo.

US clients that want to clear at JSCC must first onboard with a domestic clearing broker or a local branch of a foreign provider. Citi is one of only three non-Japanese banks with existing derivatives client clearing operations on the ground in Japan.

Citi has consistently demonstrated strong expertise in supporting the clearing of new products

Global head of investment operations at an asset management firm

Getting clients onboarded to clear at JSCC has been an all-hands-on-deck effort. “It’s been a ‘follow the sun’ onboarding process where people are working on it in Japan and then handing off to the US to get these clients onboarded as soon as possible,” says Rafi.

Citi expects to clear its first US client trades at JSCC in December. “The timelines are aggressive,” Rafi says. “But some of our clients have been waiting on this access for 10 years.”

Citi isn’t stopping there. The requirement that US clients have to clear through a local broker means that buy-side firms could lose some of the margin offsets they get when trading and clearing via a US FCM. Citi is already working with JSCC on a potential fix and is also exploring internal solutions that could allow it to offset exposures across its US and Japanese entities.

Clients broadly praised Citi’s proactive response to regulatory developments. The bank does a good job of explaining the more granular and technical compliance requirements associated with new rules, they say, and works with clients and regulators to ensure they are implemented correctly on all sides. In a recent example, Citi was quick to spot the need to make changes to capital requirements known as the standardised approach to counterparty credit risk in order to realise the benefits of expanding the cross-margin agreement between CME and the Fixed Income Clearing Corporation to client trades. The bank seems to have a sharper grasp of regulatory and market structure issues than many of its rivals and has been instrumental in advancing industry initiatives, these people say.

Special FX

Clients also heaped praise on Citi’s unique approach to FX clearing.

“One of the things we have been trying to do is bring our FX prime brokerage and clearing offerings closer together, given our strength in both,” says Rafi. “And one of the obstacles we noticed for NDF [non-deliverable forwards] clearing adoption is that clients don’t want their execution to be impacted by moving into clearing.”

The problem is that some types of FX execution are not supported for direct clearing. Citi developed a solution that allows clients to trade NDFs with the prime brokerage business and then submit them for clearing, which allows greater flexibility on execution methods.

The bank is now working with clients to develop other custom models that could bring more products into clearing.

“Citi has consistently demonstrated strong expertise in supporting the clearing of new products,” says a global head of investment operations at an asset management firm. “As we progress with an initiative to clear a broader set of instruments, Citi’s guidance has been essential in helping both our organisation and our administrator understand and implement the requirements.”