GMEX Positions for New MiFID II Venues09.02.2016
GMEX Group, the exchange and post-trade technology provider, is preparing for increased electrification and new types of trading venues when regulations come into force in the European Union as it partners for a new platform with interdealer broker Tullett Prebon.
Hirander Misra, chief executive of GMEX Group, told Markets Media: “As we saw with MiFID, the new regulations will lead to an increase in types of trading venues in Europe. There will be an increase in electronification such as with SEFs in the US following Dodd-Frank”
MiFID II, covering financial markets, will come into force in the EU in 2018 and introduce a new category of trading venue, the organised trading facility (OTF) as well as changing how banks and brokers organise their trading operations, especially if they choose to operate as systematic internalizers with new pre-trade requirements across asset classes. In the US the Dodd-Frank reforms have led to a shift away from over-the-counter trading of certain derivatives which have been required to move to electronic swap execution facilities as regulators have pushed to increase transparency.
Last month Tullett Prebon said it had partnered with GMEX Group to develop a hybrid voice and electronic trading platform for foreign exchange options through integrating GMEX’s request for quote technology with Tullett Prebon’s existing central limit order book capability. `
David Perkins, managing director of electronic broking at Tullett Prebon, said in a statement: “This latest initiative highlights our intent to deliver premier electronic and hybrid solutions that empower our voice brokers and aid market liquidity whilst enhancing and simplifying our customers’ workflow.”
Misra predicts more hybrid models will launch as a result of MiFID II as banks will want to trade less liquid instruments more efficiently on an electronic venue but still need a voice component for certain trades, particularly block trades.
“The Tullett partnership is our first hybrid model,” added Misra. “In Vietnam there is a central order book but also the ability to fully negotiate off the order book.”
In March GMEX Group entered into a joint venture agreement with Hanoi-based FPT Information System to provide the Hanoi Stock Exchange with technology for the first derivatives market and fully integrated clearing house in Vietnam. GMEX Technologies and FPT will manage the project to provide a multi-asset, multi-language exchange trading system suite and market surveillance solution to HNX, who will operate the derivatives exchange.The first traded instruments will be share indexes and five-year government bonds.
The project also includes a new clearing house for the Vietnam Securities Depository, which will operate in real-time thanks to the absence of legacy systems with old technology.
“Vietnam acquired our technology because it is very versatile due to its distributed model,” said Misra.
He expects the Vietnamese derivatives market will be delivered within seven months of signing and to go live in the first quarter of next year.
“GMEX is keen to explore emerging markets, asset classes and trading venues where we can innovate,” added Misra. “We can help improve the whole market ecosystem from exchanges to clearing and settlement.”
For example GMEX has provided technology in Uganda where ALTX East Africa, a pan-African Exchange, which went live since in July this year, and for the Central Asian Stock Exchange, the first stock exchange, central securities depository and clearing house in Tajikistan.
In the UK in August 2015 GMEX launched its own derivatives market for euro-denominated interest rate swap constant maturity futures.
Constant maturity futures contracts do not have quarterly expiry dates and are designed to provide better hedging than the futures on swaps which have been launched by rival exchanges. GMEX’s margin is also based on a two-day value-at-risk rather than up to five days in the case of existing standard swaps and swap futures, and require lower margins.
“The volume of IRS CMF will pick up in the fourth quarter and first quarter of next year as mandatory clearing is phased in and we will be announcing more partnerships,” added Misra.
Last November GMEX said the Commodity Futures Trading Commission has authorised the offer of IRS CMF to US-based firms. In Chicago GMEX provided for the new SEED CX Commodities Exchange which is currently going testing.
Although GMEX’s electronic platform is based in London and the UK has voted to leave the European Union, trade confirmation and clearing is through Eurex, the Deutsche Börse subsidiary. The German exchange owns a minority stake in GMEX alongside Société Générale Corporate & Investment Banking and the investment vehicle of Forum Trading Solutions Limited.
“There has also been an increased focus from the UK government on trading outside the EU. As a result we have been approached to be part of delegations due to our record in emerging markets,” said Misra.
More on MiFID II:
Most participants are generally supportive of clearing.
The total traded repo volume on Eurex across all markets has doubled this year.
The service facilitates clearing and settlement via Cboe Digital's U.S. regulated, real-time clearinghouse.
The impact of the SEC’s Treasury clearing proposal could be significant.
Members that trade and clear U.S. Treasuries and CME interest rate futures will have capital efficiencies.