Post-trade services for foreign exchange derivatives such as swaps forwards, non-deliverable forwards (NDFs) and options are evolving at a rapid clip as the impact of the Dodd-Frank Act and its European counterpart, Emir, begin to be felt.
MarkitServ, an electronic trade processing service for over-the counter derivative transactions and Misys, a provider of treasury and capital markets systems, launched a platform for Misys Confirmation Matching Service (CMS) customers to deliver foreign exchange derivative trades to central clearing counterparties (CCPs).
The offering integrates the MarkitServ FX clearing gateway—a single point of access to all FX CCPs used by executing brokers, clearing brokers, trading venues and buy-side firms—with Misys CMS, a post-trade treasury system used by banks, brokers, fund managers and corporate treasurers to improve trading efficiency and reduce risk.
“Post-trade services are designed to ensure that both sides have properly recorded the trade as close to the actual trade as possible,” said Gilmore Bray, solutions director at Misys Global Managed Services.
Misys CMS is a software-as-a-service application which confirms OTC bilateral trading activity between fund manager, corporations and their counterparty bank or broker.
The connectivity between Misys and MarkitServ offers Misys CMS customers the benefit of seamless access to all FX CCPs and other FX market participants.
A corporation may use an FX trade as a means of payment and provide settlement instructions or for hedging transactions or exposures.
“Fund managers will generally enter into FX trades to settle a cross-border equity transaction and notify the custodian of the sale or purchase of the FX,” said Bray. “For both fund managers and corporations CLS [Continuous Link Settlement] may be used for settlement through a CLS correspondent. Derivatives and commodity trades tend to be of longer duration and are much more complicated in structure. Confirmation is required but tends to take longer given the nature of the trade.”
While Misys is providing a confirmation matching service to financial institutions and commercial clients, it is the fund manager that requires Misys services to clear NDF trades under their name. MarkitServ, in this arrangement, is assisting its clients by sourcing the financial institution side of the trade for central clearing.
Keith Tippell, MarkitSERV
“Combined with our partnership with Swift to receive trade messages and deliver cleared status notifications via the Swift network, and our unrivalled FX CCP connectivity, this collaboration reinforces our position at the forefront of regulatory processing efficiency in the FX market,” said Keith Tippell, director and co-head of FX at MarkitServ, in a statement.
MarkitServ provides connectivity to LCH.Clearnet, the Singapore exchange and CME for FX clearing and will continue to connect to any other CCPs that offer FX clearing, the company says. To date, MarkitServ has processed 99.9% of all FX trades which have been centrally cleared.
On November 20, 2012, the U.S. Treasury issued a determination that FX swaps and forwards will be exempted from many of the requirements of Title VII applicable to swaps, but will remain subject to the swap reporting requirements.
“Through MarkitServ we are able to meet our client’s need to clear NDF trades in a timely and efficient manner,” said Bray at Misys. “We are in a position to also clear FX forwards and swaps should at some point the exemption be removed. FX options will be the next instruments to be cleared and Misys CMS will be able to meet this client need through MarkitServ. I would add that FX forwards and swaps are required to be delivered to the repository by the dealer.”
