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Markit Launches Clearing Certainty Hub for OTC Derivatives

Buy side firms, regional banks and other firms that execute OTC derivatives through FCMs will have a consolidated view of available credit among multiple clearing venues.

MarkitServ said it launched a pre-trade credit checking solution for the OTC derivatives markets, addressing a concern that has been lingering over certainty of clearing.

The hub, known as MarkitServ Credit Centre, will provide buy side firms with “clearing certainty” for trades executed on electronic platforms including swap execution facilities, the company said.

Buy side firms, regional banks and other institutions that access clearing through futures commission merchants (FCMs) will see a consolidated view of the credit available to them from their FCMs through the new hub. It will also help institutions determine how they deploy their credit lines among multiple clearing venues, the company said.

FCMs will update credit lines during the trading day as client portfolios change, and electronic execution venues will “ping” 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 firm exceeded its credit limit. The service can also be used for checking and managing credit lines required for off-facility voice and block trades, according to the release.

MarkitServ will initially cover OTC credit, foreign exchange and rates and will expand to other instrument — such as equity derivatives, futures and options — and to managing credit for non-cleared trades.

“As a trusted provider of financial market infrastructure, MarkitServ is highly-qualified to offer clearing certainty through our Credit Centre,” commented Jeff Maron, managing director at MarkitServ, the widely used electronic trade processing service for OTC derivatives transactions. “Dodd-Frank requirements give rise to a series of challenges for the industry around electronic trading and central clearing. The need for trade certainty is top of the list. Our ultra-low-latency service will allow participants to transact with confidence,” stated Maron.

The move is a way to address concerns over certainty of clearing and certainty of execution that have lingered in the market with the proliferation of clearing facilities under Dodd-Frank.

Commenting on this issue, Will Rhode, Principal and Director of Fixed Income Research at Tabb Group.“Ever since regulators proposed a horizontal structure for the clearing and execution of swaps, the industry has been struggling to understand how to manage the so-called ‘certainty of execution’ issue, or the risk of a trade being rejected in a fragmented clearing environment. Solutions that help rationalise this and provide greater visibility into credit eligibility will be welcomed by clearing brokers, executing brokers and swaps users alike,” commented Rhode in today’s release.

The centralized credit hub is a cost-effective solution because market participants can view and manage credit with one connection rather than creating and maintaining connections to every trading and clearing venue in the market, according to the company. The ultra-low latency systems required by Credit Centre is provided by Tradexpress from Cinnober, a global provider of solutions and services to major trading and clearing venues.

Technology development for the first phase of Credit Centre is complete and onboarding for buy side firms and FCMs is already underway, the company said. Firms can register at MarkitServ.com to begin testing.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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