Clearing Services for FX Derivatives Expand

Terry Flanagan

Market participants can route transactions to CCP of their choice.

An increase in electronic trading of FX derivatives is calling forth supporting post-trade processing services, similar to those provided for other OTC asset classes.

“As with all asset classes, growth in FX is being driven by both an increase in electronic execution and new regulation that focuses on clearing,” Keith Tippell, co-head of FX product management at MarkitSERV, told Markets Media. “We provide clients a trusted and efficient mechanism to help them manage both increasing transaction volume and new regulatory requirements.”

MarkitSERV, an electronic trade processing service for OTC derivatives, has developed its FX clearing gateway service in close consultation with major market participants. Executing brokers, clearing brokers and buy side firms can match, legally confirm and route OTC FX transactions to the CCPs of their choice.

MarkitSERV has completed industry end-to-end testing cycles and has been certified by, or has established links to, CME, LCH.Clearnet and Singapore Exchange (SGX). MarkitSERV will continue to build connectivity to other CCPs worldwide as they begin to clear FX.

MarkitSERV’s clearing service incorporates workflows designed to meet functional requirements of all participants – executing brokers, clearing brokers, the buy-side and CCPs ¬ and includes full support for client clearing and allocations.

“Mandates to centrally clear OTC instruments require new connectivity and workflows, particularly for the buy side, to migrate from a bilaterally agreed trade to, what is in essence, a multiparty transaction,” said Tippell. “With a connection to MarkitSERV, participants can designate trades to any CCP and manage their positions across multiple asset classes.”

When parties elect to clear an FX trade, MarkitSERV will automatically receive transaction data from SWIFT, match the trade, send it to the clearing broker for acceptance, and then deliver accepted trades to the designated CCP.

Once the trade is cleared, a notification will be sent from MarkitSERV to the originating party via the SWIFT network.

“Our link with SWIFT gives their users the ability to access the clearing functionality and connectivity created by MarkitSERV through the SWIFT interface,” said Tippell.

Trading in derivatives is entering a new phase as regulators and industry participants alike push for greater control and transparency.

This is manifesting itself in cutting-edge technology that is being rolled out by sell-side institutions for creating integrated trade processing platforms for FX and other asset classes.

“From a commercial aspect and specifically to FX derivatives, the ability to create a more intelligent price, keep this consistent and deliver this quickly to a client across the range of derivatives products is of great importance,” Luke Waddington, deputy global head of electronic markets at BNP Paribas, told Markets Media.

Cortex FX, BNP Paribas’s recently launched multi-product FX trading platform, acts as a single point of access to electronic FX products, tools and services.

“It enables BNP Paribas’s corporate and financial institution clients to develop FX strategies, access market-leading research and execute, monitor and evaluate their foreign exchange trades,” said Waddington.

MarkitSERV’s Trade Manager service provides clients with one interface with which to manage trade confirmation, trade allocation, and routing to clearing and reporting facilities. It is expected that FX will soon be added to Trade Manager.

Efficient management of the post trade lifecycle requires that service providers work closely together, leveraging their collective expertise to meet the precise and challenging requirements of different client segments.

TwoFour, a specialist provider of global real-time financial software, has entered into a technology partnership with Logicscope, a provider of post-trade solutions that was acquired by MarkitSERV in September 2011.

TwoFour and Logicscope have created an interface that delivers enhanced FX post-trade solutions to mutual clients.

MarkitSERV TradeSTP, the post trade technology platform developed by Logicscope, consolidates, transforms and routes normalized trade messages seamlessly to TwoFour for processing.

As trades hit the Two Four interface, MarkitSERV TradeSTP converts them, in real-time, into FpML format, allowing for speedy and uniform delivery to TwoFour’s FX back office solution.

With all messages in the same format, TwoFour is able to more efficiently manage cross-asset position keeping, risk management, confirmation processing, netting, settlement processing and accounting, supporting more complex processing and tighter integration of post-trade workflows.

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