MarkitSERV, an electronic trade processing service for over-the-counter derivatives, is providing trade affirmation, connectivity and trade status messaging services to support clearing of OTC equity derivatives by OCC, the first clearinghouse in the U.S. to clear these types of transactions.
Equity OTC clearing has begun phase one for the dealer-to-dealer market, including day-one participants JP Morgan Clearing Corp., Deutsche Bank, Barclays, Morgan Stanley, and BNP Paribas, among others. All day-one participants completed pre-launch testing between their firms, MarkitSERV and OCC.
“MarkitSERV has been focused on helping our clients deal with the outcome of regulation, and where possible, not only avoid making it a burden to them but actually improve the situation,” said Henry Hunter, managing director and global head of derivatives trade processing at Markit. “We have been active with our clients in three main areas: trading, reporting, and clearing. This includes connectivity to clearing houses, connectivity to trade repositories for regulatory reporting of OTC derivatives, and connectivity to SEFs.”
The first cleared trade was bilaterally negotiated between JP Morgan Clearing Corp. and Morgan Stanley, affirmed on MarkitSERV's platform, and routed to OCC for clearing on April 25.
"We are very pleased to have had the opportunity to participate in the development of the first equity OTC clearing product with OCC," Brian Goodman, executive director of JPMorgan, said in a statement. "The S&P Equity OTC cleared option offers the industry a risk mitigating tool with the inclusion of true portfolio margin across U.S. listed options.”
The second phase, dealer-to-client clearing, is scheduled to launch later this year. While margin offsets will remain an important feature, the second phase will also bring clients greater customer protection through the Securities Investor Protection Corporation (SIPC). The recent approval of rule changes enhances the protections afforded to customers in the event of a liquidation of their broker-dealer and serves to mitigate counterparty risk.
MarkitSERV has expanded along the dimensions of regulatory reporting for OTC trades and trade repositories, and of providing connectivity from trading venues as well.
“Our mission is to make the post trade process electronic and efficient,” Hunter said. “It’s all about making post trade as electronic and efficient as possible with one cross asset platform for all kinds of trades: bilateral, cleared, e-traded and cleared, e-traded and uncleared. It's called middleware because it takes the endpoints and connects them together. Dealers, their clients, clearinghouses, trade repositories, brokers, SEFs, and execution venues, are the nodes along this network, and we're the glue that allows them to plug for each other.”
The new service from OCC means that all OTC derivative asset classes are being cleared. “This highlights how far the industry has moved to satisfy goals set by regulators over the last few years,” Hunter said. “We offer customers one venue to manage the clearing of OTC credit, equity, interest rate and foreign exchange derivatives, as well as trade reporting, SEF connectivity and confirmation of bilateral trades.”
