MarkitSERV is upgrading its OTC trade processing platform to handle the expected increase in volumes as buy-side firms begin to centrally clear their trades in accordance with the mandates of the Dodd-Frank Act and Emir.
MarkitSERV provides middleware for OTC derivatives trade processing for cleared and non-cleared trades, across electronic execution venues and off-facility execution in credit, rates, equity and foreign exchange derivatives.
“We connect to 60 different brokers and more than two dozen clearinghouses,” said Jeffrey Maron, managing director at MarktSERV at the Sandler O’Neill exchange and brokerage conference in New York on Thursday. “We build the plumbing to allow all the parties to a transaction to communicate.”
MarktSERV has been providing post-trade affirmation and confirmation services for many years, but the need for such services will accelerate now that most trades will need to be centrally cleared.
Swap dealers, major swap participants and private funds active in the swaps market have all been required, from March 11, to begin clearing certain index credit default swaps and interest rate swaps.
“As we move to SEFs and CCPs, we are providing the infrastructure for routing transactions between and among them, as well as FCMs,” said Maron.
MarktiSERV has seen volumes increase since March, when major swap dealers were required to begin central clearing, and expects that to continue past Monday, when so-called Category II firms are required to clear. “Although most firms are ready, there are still a large number of smaller firms that have not been as active in securing FCM relationships,” said Maron.
MarkitSERV Credit Centre, a pre-trade credit checking system for the OTC derivatives market, provides clearing certainty for trades executed in electronic and hybrid marketplaces.
The CFTC’s Rule 1.74 requires clearing member FCMs to accept or reject each trade submitted to a designated clearing organization (DCO) for clearing within 60 seconds.
“The FCM has a limited amount of time to decide whether to accept a trade for clearing,” Maron said. “We are working to move that risk decision to pre-trade with Credit Centre.
BofA Merrill Lynch, Citi, and Goldman Sachs are the first futures commission merchants (FCMs) to agree to use MarkitSERV Credit Centre.
“Mandates to clear and electronically trade OTC derivatives require new networks, information flows and technologies,” said Antonio Reyes, global head of electronic execution, OTC and listed derivatives at Citi. “A system that provides pre-trade clearing certainty is a priority for our changing market.”
FCMs will update credit lines in real-time during the trading day as client portfolios change, and electronic execution venues will “ping” the MarkitSERV Credit Centre to confirm the availability of credit at the time a trader wishes to post a price or execute an order, removing the risk of a trade failing because a client firm has exceeded its credit limit.